LBO risk

Gavan Nolan, analyst at Markit Group in London, looks behind the scenes at the widening spreads of leveraged buyout targets

Event risk has long been touted as one of the most likely triggers of a reversal in the credit cycle. The now ubiquitous leveraged buyout is perhaps the most feared by bullish credit investors. In an LBO, the acquiring company - usually a private equity group - gains control of the target firm by using considerable amounts of debt. On completion of the deal, the debt will be transferred onto the target company's balance sheet, usually causing significant damage to its credit profile.

After a hive