About half the European companies bought by private equity groups through leveraged buyouts are performing below expectations.

The companies, from chemical groups to retailers, are failing to meet both earnings and debt targets, according to Standard & Poor's, the ratings agency.

Data based on 36 transactions, mainly carried out in 2007 and 2006, shows that 53 per cent of the companies were behind earnings forecasts and 50 per cent had more debt on their balance sheets than anticipated.

The figures heighten fears of companies defaulting on loan obligations, which could see them entering administration. European defaults are widely expected to rise this year, as credit markets dry up and consumers spend less.

In the United States, Standard & Poor's has already lifted its corporate default forecasts from 3.4 per cent to 4.6 per cent, as fears of a recession grow.

“Corporate defaults, though slow to materialise, are on the first leg of an ascent that will gain momentum in the second half of 2008 and likely continue into 2009,” Diane Vazza, head of S&P's global fixed income research group, said.

The agency believes that retailers are most in danger of defaulting because they have the worst earnings performance.

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