A swath of highly leveraged buyouts linked to the retail and housing sectors is beginning to come under severe strain, as the credit crunch affects the wider economy.

Companies owned by private equity, such as Fat Face, the specialist retailer, Crest Nicholson, the housebuilder, and Foxtons and Countrywide, the estate agencies, are among those affected. The market value of the debt of all four has tumbled since the start of the credit crunch, suggesting that investors no longer believe the companies are worth as much as the total value of their borrowings – and implying that the equity is worth nothing.

The senior debt of Fat Face was trading at about 82 per cent of its value as recently as November, but the value has plummeted further, to 60p in the pound, while lesser-ranked junior debt has slid to 40p. Fat Face was acquired for £360 million by Bridgepoint, the UK private equity firm, in March 2007, the peak of the debt-fuelled buyout frenzy. The value of the debt has fallen as investors bet that the company will strain as consumers tighten their belts in the face of a global economic slowdown.

However, Bridgepoint denies that Fat Face is experiencing a slowdown and has said that revenues are expected to rise by about 10 per cent in its year to this month. Foxtons, the London estate agent, which was sold to BC Partners for £390 million last July, is trading at about 50p in the pound, traders said.

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During the recent M&A bull market, private equity firms acquired businesses using huge amounts of debt and only thin slices of equity, which pushed prices and valuations through the roof.One senior banker in the leveraged-loan sector said: “If you’re looking at today’s valuations, there’s no doubt that private equity is sitting on big losses. If the debt structures begin to blow up because the assets underperform, then those losses get crystallised because the assets get forced into a restructuring.”

Crest Nicholson, the British housebuilder, was bought for £715 million in 2007 by HBOS and Sir Tom Hunter’s West Coast Capital private equity firm. Its senior debt has tumbled to 50p in the pound and its junior and mezzanine debt is trading at between 40p and 50p. Senior debt of McCarthy & Stone, the retirement homebuilder, owned by West Coast Capital, the Reuben brothers and Bank of Scotland, is trading at 75p, and its junior mezzanine borrowings at 55p to 60p.

European companies experiencing pressure include Baxi Heating, the boiler maker, owned by BC Partners and Electra, and ATU, a German car parts maker majority-owned by KKR.

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