The UK private equity market showed clear signs of overheating this year as debt levels surged to new highs in bigger leveraged buy-outs, suggesting trouble ahead for banks and buy-out firms after this summer’s credit squeeze.

Debt levels on LBOs worth at least £100m rose to 10.7 times earnings before interest and tax this year, against 9.1 times last year, according to research by the Centre for Management Buy-out Research (CMBOR). It is the first time such leverage ratios have risen above 10 for at least two decades.