Debt burden hurting equity firms

New York -- More than half the U.S. firms given the lowest credit ratings by Standard and Poor's are owned or controlled by private equity firms, USA Today reported Monday.

"Some investments made by the private-equity firms are in big trouble," Pavel Savor, finance professor at Wharton School of Business, told USA Today.

Investors are finding they have a lot to lose and face two hits if they bought
bonds sold by the same equity firms they have invested in, the report said.

The problem is escalated by the problem of managing debt during a credit crisis. Equity firms leveraged debt to purchase companies when money was cheap and now find some of those companies performing poorly. But, when a value of the company falls, the loss in value to the equity is three times as much, because of the debt, the report said.

Copyright 2008 by United Press International.