The aftermath of private equity’s golden age won’t be pretty for many, but restructuring folks are getting excited. 

For companies taken private during the go-go years of private equity, the debt burden that accompanies an LBO may be overwhelming in a downturn — leaving plenty of opportunities for distressed investors in the buyout rubble.

The private equity wave, with its focus on maximizing sponsor profits by leveraging target companies, helped create what may be the most promising environment for distressed investors in 17 years, Marathon Asset Management chief Bruce Richards said today at the 2008 Leadership in the Distressed Markets conference.

“At the end of the day, the equation really was what’s the maximum amount of debt that we can put on this company?” said Richards, whose firm manages over $10 billion. 

Indeed with cracks appearing in the leveraged loan default rate, LBOs already look promising for distressed investors.

“Everything is priceable in this marketplace — it’s just that most of the marketplace doesn’t want to wake up to where those prices are,” said Richards. “I have at my desk about 162 companies that we think are going to default or be forced to restructure in the next 12 to 18 months.”

And for private equity firms responsible for much of the buyout boom? They’re unlikely too miss out on any restructuring wave — many also have their own workout groups.

“The availability of capital over the last few years has created a pent up, if you will, stress on companies,” said Steven Zelin, a senior managing director in Blackstone’s restructuring group, at the conference.

“There has been a fair amount of profitability in the large deals, not so much because of the underlying fundamental opportunities in the business — which there is in many, many instances, but because of the financial engineering capability that was perceived to exist when the deals were first done.”

(Image credit: www.utexas.edu)