The default risk of companies owned by private-equity firms is 2.5 times that of their public counterparts, according to data collected from banks, insurers and asset managers by analytics firm Credit Benchmark, the Wall Street Journal reported. Private-equity firms use leveraged loans, rated below investment grade, for the financing of buyouts of target companies. Financial institutions raised their estimates of the average probability of default—or nonpayment—for such loans to about 6 percent in September from 5.44 percent a year earlier, according to the data. Lenders surveyed by Credit Benchmark assigned a 2.36 percent default probability to leveraged loans of public companies in September, compared with 2.28 percent a year earlier. The finding comes as worries mount about a turn in the credit cycle and a rise in corporate distress. Easy money from central banks has kept default rates relatively low since the 2008 financial crisis, but rising corporate debt is flashing a warning sign to investors, Morgan Stanley bond analysts said in a report published Nov. 19.
