DEALTALK-Earnings pressure hits private equity portfolios

* European PE portfolios seen falling up to 15 pct for 2009

* Company outlooks worsening

* 70 pct of peak market deals could be restructured

* U.S. buyout funds not expected to see as big Q2 writedowns

By Simon Meads and Megan Davies

LONDON/NEW YORK, July 14 (Reuters) - Private equity firms are revaluing their debt-laden portfolios at the half year mark and European funds are facing harsh writedowns as the economy continues to falter.

The rebound in equity markets from March lows back to levels at the end of December has spurred hopes that valuations may pick up again. However, investors remain cautious as it is still tough to predict earnings for portfolio companies.

"General partners are all saying very much the same thing -- the forward visibility on earnings is not good," said Rob Wright, partner at London-based private equity fund of funds Pantheon (PANI.L).

With company earnings challenged almost across the board, Wright said valuations would fall between 5 and 10 percent in 2009, with the biggest hits at firms that have struck bigger deals in more recent years.

"I think we will see pretty heavy writedowns again at the half year and probably again at the full year," said Iain Scouller, analyst at London-based Oriel Securities.

Scouller estimated net asset value falls in the range of 5 to 15 percent for 2009.

However, he said that assumption was based on equity markets remaining largely flat.

Britain's blue-chip FTSE 100 .FTSE share index slumped to 3,460 points in March but had regained more than 20 percent by the end of June, putting it back close to levels at the end of 2008, when private equity firms carried out their last major revaluation. The Standard & Poor's 500 Index .SPX rose 15 percent in the second quarter.

"The big risk is that equity markets fall away in the autumn like last year. And if you come out with that scenario you will see far bigger writedowns," said Scouller.

U.S. FUNDS

In the United States harsh markdowns have already been taken for the year end and first quarter, so half-year numbers should be less dramatic.

Funds are likely to mark their portfolios around the same as the end of the first quarter, according to two private equity fund sources. One of the sources said numbers could even rise due to the equity market rally.

"I don't see them marking anything up because (the markets) could easily fall back again. Equally, there's less argument for significant writedowns," said that sources. "The question is how trading will hold up for the rest of the year."

Buyout firms typically revalue their assets twice a year in Europe and quarterly in the United States, often using public company comparables as a guide.

The valuations, which are not expected to be released to investors until August, will also vary according to the different models firms use to value portfolios.

One method is based on how comparable publicly traded firms are performing. Another is based on predicting their asset's future cash flow, known as discounted cash flow (DCF). DCF tends to give a higher value, a third private equity source said.

For the first time this year, firms are obliged to value their companies as if they were to sell them today, rather than years in the future when they may be sold -- although many funds had been following the system previously.

Some private equity firms in Europe have already taken the knife to company valuations.

Permira [PERM.UL] has written down its portfolio by 36 percent in 2008 and Candover (CDI.L) has sliced the value of its portfolio by 50 percent and said six investments were worthless.

One private equity managing partner who declined to be named said there would be "many more markdowns to come".

Some 70 percent of the larger buyout deals struck in the frothy markets of 2006 and 2007 could end up in restructuring, he said, whereby firms are often forced to inject more equity or run the risk of losing the investment altogether. (Editing by Karen Foster)