Billionaire Wilbur L. Ross makes bizzare corporate bankruptcy prediction for 2007. Private Equity firms to blame?

From this Reuters Article.

"Ross, dubbed the 'King of Bankruptcy' by Fortune magazine in 1998, said at a conference in London on Wednesday that defaults would rise to about 7 percent of all companies by the end of next year -- one of the most bearish predictions in the industry -- from about 1 percent now."

More information from an article in US News and World Report:

"A shakeout is coming, experts say. It is just a question of when. Many banks, law firms, hedge funds, and private-equity groups are already bolstering the ranks of their distressed-debt units and are gathering bankruptcy specialists for just such an occasion. Private-equity player Wilbur Ross, known for his astute nose in picking up distressed companies on the cheap, says it won't be long. Too much money is being paid to take on too much risk with too much debt, Ross warns, adding that bets by some highly leveraged buyout firms that they will be able to cheaply refinance their deals in a few years have "been building in a time bomb." In this scenario, higher default rates aren't just likely, he concludes; "they are quite inevitable.""

From what I can tell, Ross is saying that the debt markets are in big trouble because of the rise of Private Equity firms and their extensive use of leveraged buyouts to the point where the companies can't support the debt burden. A great example of this is the recent Hertz Global Holdings, Inc. (HTZ) IPO flop in which a few private equity firms dumped Hertz on the open market after increasing it's already heavy debt load in order to pay themselves a quick cash dividend.

If Ross's prediction is correct, the corporate debt markets are in for a real hammering in the next few years. It might be time to start looking carefully at the loan portfolios of major banks.