Goldman says corporate defaults to rise in Europe

By Elena Moya

LONDON (Reuters) - Corporate defaults will increase in Europe next year as heavily indebted companies struggle to meet payments while interest rates rise, said Eugene Leouzon, chief underwriting officer at Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz).

In anticipation that more companies will fall into trouble, Goldman Sachs plans to expand its restructuring team, Leouzon said on Thursday at the Reuters Investment Banking Summit.

"We want to be there for financing and for existing deals with Goldman Sachs clients," he said. "Our fallen-angel type of client is going to turn to us."

Defaults will especially affect companies within the non-investment grade ranking as they can have debt levels of as many as eight times their earnings before interest, tax, depreciation and amortization (EBITDA), he said.

Some companies, for example, are signing five-year deals without covenants, he said. The boom comes as investors have record levels of liquidity to place, he said.

"The cycle is going to turn," Leouzon said.

Bigger companies are expected to be least affected because they have reduced their debt levels over the past six years, he said.

The U.S. investment bank said in July it had hired former Rothschild turnaround specialist Lachlan Edwards to strengthen its restructuring unit. Leouzon declined to give more details about the expansion.

The UK raised interest rates to 5 percent from 4.75 percent earlier this month.