Corporate America is about to witness a sharp rise in bankruptcies caused by the recent boom in debt-funded acquisitions and hedge funds’ growing appetite for take-overs, according to Wilbur Ross, the veteran investor in distressed businesses. Mr Ross, who has accumulated an estimated $1bn fortune by investing in troubled industries such as textiles and coal, said the highly-leveraged buy-outs of the past few years would take their toll on several US companies.

“I think we are going to see a big increase in bankruptcies in 2007-08,” Mr Ross, chairman and chief executive of the private equity group that bears his name, told the Financial Times. “Every time you compound leverage, you cut the margins for error.”