Apollo Global Management's Leon Black yesterday sounded the leverage alarm, while speaking at a Goldman Sachs conference:

"The credit markets, unlike the equity markets, have gone to bubble status. The amount of covenant-less debt is more than 2007. You have a thirst for yield that exists on a global basis. So there is true excess."

Black's comments came just hours after Moody's published a report on the "alarming" number of private equity-backed companies with poor credit ratings, suggesting an "elevated" risk of bankruptcies when the economy turns south and investor sentiment sours.

  • Moody's reports that around 90% of PE-backed debt issues are rated B2 or lower, compared to just 40% of spec-grade companies without PE sponsorship.
  • But, right now, creditor recoveries are fairly similar for companies with and without private equity sponsors.

It also comes as debt multiples are on the rise for private equity companies. S&P LDC provided Axios with data showing that debt-to-EBITDA multiples for private equity deals are at their highest average levels since 2007.

  • The year-to-date figure is 5.8x, up slightly from 5.7x for all of 2017 and a big climb from the decade-low of 3.8x in 2009. In 2007 the figure was 6.1x.
  • LBO purchase price multiples of EBITA are down slightly from 10.6X last year to 10.5X so far in 2018, although it's the fourth straight double-digit year. In 2007 it was 9.7x.

The bottom line: Private equity didn't cause the last recession, and it won't cause the next one. But when the fall comes, it hasn't given itself much of a cushion.

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Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 12 p.m. ET: 13,589,273 — Total deaths: 584,990 — Total recoveries — 7,607,033Map.
  2. U.S.: Total confirmed cases as of 12 p.m. ET: 3,499,771 — Total deaths: 137,420 — Total recoveries: 1,075,882 — Total tested: 42,521,027Map.
  3. States: Georgia governor bans local governments from issuing mask mandates — Florida breaks single-day record with over 150 coronavirus deaths
  4. World: U.S., Canada and U.K. accuse Russia of trying to steal coronavirus vaccine research.
  5. Politics: RNC to restrict attendance at Florida convention amid coronavirus surge.
  6. Business: More than 32 million Americans are receiving unemployment benefits.