For private equity firms it's the equivalent of the $64,000 question: how to extract value from their debt-laden businesses at a time when refinancing is nigh on impossible and outright sales have all but dried up.

In many cases it could make anaemic returns from IPOs the best they can expect.

Private equity-owned firms have $270 billion (171.1 billion pounds) in loans due by the end of 2015, according to Thomson Reuters LPC/DealScan data, a vast sum as Europe's banks struggle with the debt crisis and fears of a credit crunch loom large.

We might well see private equity-controlled companies with capital structures dating from the pre-crisis years seeking to go public to reduce leverage, said John Crompton, global head of equity capital markets (ECM) at HSBC.

The number of candidates ... runs to several score, looking out over the next year or two, he said.

Buyout companies can exit companies either by selling them or floating them on to stock markets. They can also load their companies up with fresh debt -- but this avenue is now largely closed, or is punitively expensive.

Terra Firma founder Guy Hands, one of the sector's highest-profile figures, said this week an extra 450 billion euros (385.4 billion pounds) may need to be pumped into a total of 3 trillion euros of leveraged deals worldwide between 2013 and 2015.

Listings aren't becoming any easier either. Choppy markets have forced dozens of companies to pull planned initial public offerings (IPOs). Those that did go ahead in many cases lost value after their debut, souring investor sentiment.

Private-equity backed floats have been particularly scarce, as the gap between what sponsors wanted for their assets and what investors were willing to pay widened. Only a handful, including 3i's Norma Group , have succeeded.

It is the sellers who are not being realistic on price, said Dominic Rossi, head of equities at Fidelity Worldwide Investment, who regularly looks at such offerings.

High debt levels pushed many private equity-owned companies to the brink in 2008, resulting the eventual high-profile losses of businesses including music group EMI and gaming group Gala Coral.

In both instances, lenders seized control of the companies from their private equity backers when the businesses breached the terms on their debt.


Cautious investors have given a hearing to expanding companies with a clear plan for development, but have baulked at the prospect of providing private equity firms a way to get out of their highly leveraged investments.

Poor performances by sponsor-backed IPOs such as jewellery maker Pandora
have also left investors wounded.

IPOs have been one way for growth companies to find liquidity and have had a good reception from investors. But the market for backing over-levered companies is completely shut, said Gabriel Caillaux, managing director at private equity firm General Atlantic.

The pressure on some to offload assets may help redress the balance towards investors.

A lot of these companies are on a debt time bomb so there is going to be a lot more pressure on the owners of assets to refinance that debt, and that will shift the balance of power, specifically in the debate around valuation, said Ben Iversen, head of equity capital markets (ECM) in EMEA at Nomura.

Some of those issues will get forced over the coming quarters around certain assets and hopefully we will get some transactions start to work again.

With debt maturities peaking in 2014 and 2015, some believe there is still time and a number of other options for recapitalising companies, not least the sale to a corporate buyer or a rival private equity firm.

If I was in an emergency situation, I'm not sure I would use the public markets to dig it out. I don't think the public markets are the only source of new equity to deal with those debt maturities, said one European sponsors head at an international investment bank.

Other options are finding a new private equity co-investor, allowing sponsors to exit or reduce their stakes, as was the case when CVC bought into theme parks operator Merlin.

Still, for the largest companies bought in the boom years, an IPO may be the only realistic option. They could start cautiously, selling small parcels of new shares.

Then you wait for the company to perform over time, the stock trades up and you can sell your shares at a higher number, said the European sponsors head.

At the moment, with stock markets still jittery over the outcome of Europe's debt crisis and the VIX <.VIX> volatility index -- known as the fear gauge at elevated levels -- that strategy still requires time.

(Editing by Douwe Miedema and David Holmes)