Nov. 12 (Bloomberg) -- European companies acquired in leveraged buyouts violated loan restrictions and requested waivers from debt conditions in the past year at almost twice the pace of the previous 12 months, according to Standard & Poor's.

Loan covenant breaches and appeals for debt waivers and restructurings rose to 38 instances in the 12 months through October, from 18 in the previous period, according to S&P. So far this year, 23 companies have experienced ``difficulties'' with their loans within three years of their last financing, compared with four in 2006 and 29 in all of 2007, S&P said.

Buyout firms, whose loans make up about 90 percent of the S&P sample, are struggling to keep the companies they acquired before the credit crisis on course to meet business plans. Rising raw material prices in 2007 and much of 2008 ``damaged liquidity positions,'' while the slowing economy has hurt firms sensitive to the economic cycle, S&P said.

``There are many companies which we understand are near to breaching their covenants and may be in breach over the next few quarters,'' S&P analysts led by Taron Wade in London wrote in the report. S&P ``expects the financing difficulties being experienced by speculative-grade companies to intensify as much of Europe enters into recession.''

Loan covenants set minimum levels of cashflow and interest coverage as well as maximum levels of leverage and capital spending. Failure to observe these conditions can constitute a default, allowing lenders to reset terms, or even demand repayment.

Buyout Firms

An increasing number of buyout firms are being forced to put new equity into companies they own in response to a breach, a waiver or a reset, S&P said. The number this year is 11 out of 24 deals, or 46 percent, up from 33 percent in 2007 and 20 percent in 2006, according to the report.

Companies that were recapitalized to allow private-equity sponsors to take out a dividend may soon experience more covenant breaches, S&P said. Because buyout firms already received a return from a recapitalization, they may be unwilling to put in more money, according to S&P.

Alexandra Krief in Paris and Andres Albricci in London helped prepare the report, which is titled ``Loan Breaches by Highly Leveraged European Companies Double as Recession Fears Grow.''

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

Last Updated: November 12, 2008 08:21 EST