Leverage ratios —the debt on company balance sheets in relation to its earnings— in private equity continue to rise, getting near levels not seen in some time.
Take the announcement on Tuesday that two U.S. private equity firms, Silver Lake and Warburg Pincus, would acquire Interactive Data Corp for $3.4 billion. The debt-to-equity ratio of this deal is 6.5 times its yearly EBITDA.
Last month, PE firms' debt-to-equity ratio was 5 times its yearly EBITDA. There’s no doubt about it, the debt continues to accelerate.
My sources tell me that there is speculation that the debt-to-equity ratio could increase to heights —8 times its yearly EBITDA— not seen since the financial crisis. This makes bankers uncomfortable, but shows the willingness of Wall Street.