Corporate debt bubble to burst in 2008

giovedì, 7 dicembre 2006 1.55

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By Elena Moya

LONDON (Reuters) - Britain's corporate 'debt bubble' will burst in 2008 as overleveraged companies grapple with debt payments while consumer confidence is likely to fall, experts said at a conference on Wednesday.

Companies acquired by private equity firms typically face their first debt payments three years after the acquisition. The firms purchased during the 2005 private equity boom are, therefore, expected to struggle in 2008 after adding high levels of debt over the past three years, said Keith McGregor, a partner at accountancy firm Ernst & Young.

"Debt markets are definitely in a bubble," McGregor said during a restructuring conference. "Prices are high, firms are overleveraged and it's in the nature of a bubble to burst."

Consumer spending is expected to fall in 2008 by about 10 percent, McGregor said. The annual 100 billion pounds that Britons spend in food and drink may remain stable, but the 150 billion spent for non-discretionary retail items is expected to suffer, he said, adding, "There will be casualties as a result".

Some specific sectors such as retail will suffer as early as next year, said Peter Marshall, a director at restructuring boutique Houlihan Lokey Howard & Zukin.

Some retailers will be particularly vulnerable after hedge funds and private equity houses provide them with more funds, postponing any restructuring needed now, Marshall said.

Medium-sized footwear and apparel high-street chains that offer neither the cheapest nor the most expensive products are also vulnerable, McGregor said.

"It'll be really tough after Christmas," McGregor said. "We're not good at retail in this country. We don't have good salesmen."

Woolworths warned earlier this week its full-year profits could plunge to half of last year's total if sales did not pick up in the next three weeks of trading.