July 24 (Bloomberg) -- The cheap financing that fueled the leveraged buyout boom is over, said Bill Gross, manager of the world's largest bond fund.

``The tide appears to be going out for levered equity financiers and in for the passive owl money managers of the debt market,'' Gross, chief investment officer at Pacific Investment Management Co. in Newport Beach, California, wrote today in his monthly commentary on Pimco's Web site. The shift ``promises to have severe ramifications for those caught in its wake.''

The resistance of fixed income investors to LBO debt has increased borrowing costs and will bring an end to lax financing standards, Gross said. An index that tracks the risk of below- investment grade companies has fallen this month as losses from subprime mortgages mount, increasing the implied cost of protecting high-yield bonds to the highest since May 2005.

Money managers had snapped up bonds and loans from LBOs sponsored by private-equity firms such as Blackstone Group LP and Kohlberg Kravis Roberts & Co. ``as if they were prisoners in an isolation ward looking forward to their daily gruel passed unemotionally three times a day through the cellblock window,'' wrote Gross. ```Here, take this' their investment banker jailers seemed to say, `and be glad that you've got at least something to eat!'''

A growing lack of confidence has ``frozen'' future lending and backed up the market for high-yield new issues so that ``absolutely nothing is moving,'' he wrote.

The CDX North American High-Yield of 100 companies with non-investment grade ratings fell 0.5 to 92.75 as of 9:36 a.m., according to broker Phoenix Partners Group. That implies the cost to protect $10 million of the bonds climbed to $488,000.

To contact the reporter on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net

Last Updated: July 24, 2007 11:34 EDT