Private equity deals less leveraged

LONDON (Reuters) - Private equity firms are being forced to put more equity into their portfolio companies as the days of excessive leveraging appear to be over, a private equity fiancier said.

Private equity companies who once could borrow as much as 90 percent of the enterprise value of a company, leaving equity to represent a mere 10 percent, are now forced to put as much as half of a company's worth in equity, Buchan Scott, a partner at Duke Street Capital, said at the Reuters Hedge Funds and Private Equity Summit in London.

"We'll see private equity companies having to put more money into their companies," Scott said. "It's definitely increasing."

Private equity firms Candover recently increased its equity in Ontex, a Belgian maker of diapers, while BC Partners and Oaktree also increased their investments in British heating systems maker Baxi Group and R&R Ice Cream Ltd.

The collapse of the U.S. subprime mortgage market last summer has led to a global credit crunch as banks tighten lending.

"In the larger buy-out space, you just can't get the debt, full-stop," Scott said.

Mid-market deals are still flowing, Scott said, although they require further equity investments, the same as in debt restructurings.

"The nature of refinancing has changed," Scott said. "Before, you took equity out, now you're bringing it in."

Deals are also more difficult as banks now want to share the risk upfront, whereas formerly they would take on some debt, and distribute it with other banks afterwards, Scott said.