The Financial Services Authority on Monday said it was stepping up scrutiny of the private equity industry and its impact on UK wholesale markets, after expressing concerns over the amounts of money being lent to finance private equity transactions.
The regulator said: “The amount of credit that lenders are willing to extend on private equity transactions has risen substantially. This lending may not, in some circumstances, be entirely prudent.”
It went on to say that given current leverage levels and recent developments in the economic/credit cycle, “the default of a large private equity-backed company or a cluster of smaller private equity-backed companies seems inevitable.”
The regulator added that “in extreme circumstances”, this had negative implications “for financial stability and elements of the UK economy.
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