The $23 billion (£11.3 billion) auction for Virgin Media suffered a setback last night after it emerged that TPG, the US private equity group, has withdrawn from the battle.

TPG, one of the world’s biggest buyout firms, is understood to have abandoned the auction in part because of concerns over Virgin Media’s business model.

The news of its retreat came as City sources said the turmoil in the financing market will probably throw the sale off track by at least a month, as banks shut down on financing and private equity firms are left scrabbling to secure debt.

The turmoil has given trade players an edge in the auction, as private equity rivals struggle to secure financing. Yesterday Liberty Global, Europe’s biggest cable operator, threw its name into the ring, saying it was exploring entering the auction. John Malone, the chairman of Liberty Global, raised the possibility of joining forces with a private equity player to bid. However the crunch in the credit markets has triggered jitters about the progress of the deal and the ability of any private equity player to raise the $15 billion debt that would be required.

People involved in the Virgin Media auction, for which first-round offers are due next week, cautioned that the credit crunch could force it to be put on hold. It is thought that Virgin Media, which is being advised by Goldman Sachs and UBS, will seek to prolong the auction in the hope that a pickup in the credit markets will entice private equity players back to the fray.

One City source said: “Of course there are some nervous bankers. Things depend on whether this [the credit crunch] is a longer lasting phenomenon or not.”

Virgin Media, which is expected to be quizzed on the progress of the deal at its second-quarter results on August 8, also wants to safeguard itself against trade players using the problems facing private equity operators as a negotiating tool to talk down the price they are prepared to offer.

Michael Fries, Liberty’s chief executive, said: “We owe it to our shareholders to look at this type of company given its size, scale and unique financial attributes, including its tax position.”

Liberty, which was once an investor in Telewest, the cable company that merged with NTL and Virgin Mobile to create Virgin Media, faces competition from Carlyle, the US buyout group and a consortium led by Providence.

At the same time as flagging its interest, Liberty Global also cast doubt on the ability of the cable operator to outperform its rival, BSkyB, the satellite operator which is 39.1 per cent owned by News International, parent company of The Times.

John Malone, Liberty’s chairman, said: “The concentration of market power that has been created means you have to scratch your head and say can anything compete?”

It is thought that TPG’s decision to pull was based more on its assessment of Virgin Media’s prospects rather than on the credit market situation.

Time Warner, which had been regarded as another potential trade bidder, is also maintaining publicly that it is not interested in joining the auction. A spokesman said: “Rumours of Time Warner’s interest are unfounded.”

A delay in the auction process could prove an unwelcome distraction for Virgin, which has so far been unable to fulfil its ambition of becoming a formidable force in the home communications market.

The group’s poor first-quarter performance triggered a public outcry from investors. Rumours are also rife of disharmony in the boardroom and disagreements between Jim Mooney, its chairman, and Stephen Burch, its chief executive.

Sources familiar with Carlyle insisted that the US group had factored a possible downturn in the credit markets into its Virgin bid and the price it has offered. They pointed out that as far back as March William Conway, the group’s founder, had warned his colleagues in a memo – which was made public – about the “very risky credit decisions” being taken to finance buyout deals.

Carlyle, whose indicative approach is thought to be the culmination of around a year’s work, is understood to be willing to wait as long as it takes to secure the cable operator.

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