BoE warns private equity crash could trigger next wave of financial crisis.

Guardian: The Bank of England warned on Thursday that the next phase of the UK’s six-year financial and economic crisis may be triggered by the collapse of debt-laden companies bought by private equity firms in the boom years before the crash.” “In its latest quarterly bulletin, Threadneedle Street said the need over the next year to refinance firms subject to heavily leveraged buyouts posed a systemic threat. ….”Many of these buyouts, especially the larger ones, were highly leveraged and the increased indebtedness of such companies poses a risk to the stability of the financial system – a risk that is compounded by the need for companies to refinance debt maturing over the next few years in an environment of much tighter credit conditions.” Noting that there had been a surge of private equity deals in the first six years of the last decade, the Bank said a feature of the investments had been the use of debt. Buyouts were typically financed by money borrowed from banks, with the debt becoming the liability of the purchased company. ….But it said a refinancing challenge was looming in 2014, because the peak in debt issuance was in 2007 and the average maturity of leveraged buyout debt is seven years. …..The study cited the case of Royal Bank of Scotland, now 83% owned by the taxpayer after being rescued from collapse by the Treasury in October 2008. An aggressive expansion into leveraged finance was an important factor in RBS’s credit losses, Threadneedle Street said.”
JL: Here we have a potentially deadly stress on the financial system projected for 2014 window, when the UK Industry Taskforce on Peak Oil and Energy Security expects the oil price to be increasingly unaffordable.