Private equity’s recent splurge of piling ever more debt onto already highly leveraged bets has sparked fears about financial-system risks. Banks, however, are positioning themselves to take advantage.

As buyout firms have struggled to sell companies in a difficult M&A market, many have turned to “net asset value” loans, where they borrow money from specialist funds or banks secured against a portfolio of their holdings — often at very high interest rates. It’s been a controversial way to avoid booking losses on asset sales while hoping for a better environment for making deals. READ MORE