The red-hot market for LBOs may be hitting a long-awaited rough patch. Several big deals—including Apollo's $1.3 billion Linens 'n Things buy and the multigroup $17.6 billion acquisition of Freescale Semiconductor Holdings—have turned sour, with the companies struggling to generate enough cash to pay down debt after soft quarters.
Industrywide, the interest-coverage ratio for newly private companies—their ability to pay interest on their debts—is at a 10-year low. And if the economy slows further, or companies hit cyclical downturns, they may find themselves struggling to meet their debt obligations at all. But some analysts think bears are crying wolf. "These are one-off problems," says a Bear Stearns exec of the small set of troubled deals.