Corp. Credit Crisis (Private Equity) > Recession
Want to get peoples thoughts on this and see where some may agree or disagree.
Essentially I have this belief from talking to clients over the past couple weeks. The private equity market has gotten so large and private equity backed companies make up such a large percentage of our economy. So as many of you know when these get purchased they are often done with debt (highly levered) and essentially no liquidity other than a line (more debt).
I'm thinking that the CV will cause a corporate credit problem because when there is such a large disruption in operations and revenue (let's say 15%) many of these companies will not be able to afford to make interest payments. This will of course cause defaults/bankruptcies, which will then cause layoffs, which will then cause mortgage and personal loan problems, which of course is recession territory and a formula for market collapse.
Thoughts? Where am I off