By Emily Thornton

From Buyout To Busted

A record number of private equity-backed companies are filing for bankruptcy. As of Sept. 9, according to Richard Peterson at Capital IQ (like BusinessWeek, a unit of The McGraw-Hill Companies) 134 American companies taken private (or invested in) by buyout firms have filed for protection this year under Chapter 11. That’s 91% more than the previous record set over the same period in 2007, when 70 of such companies went belly-up. Two of the biggest bankruptcies: Oklahoma-based energy company SemGroup, 30% held by a fund owned by the Carlyle Group and Riverstone Holdings, and Linens Holding, which Apollo Management bought in 2006. Other high-profile casualties include retailers Mervyn’s and Steve & Barry’s. Noting that buyout firms typically use a lot of debt in doing deals, making them vulnerable in an economic downturn, bankruptcy lawyer J. Andrew Rahl Jr., a partner at Reed Smith, views the high number of buyout-backed bankruptcies as a leading indicator of more corporate bankruptcies in general. “We’re going to see a tidal wave,” he says.