The owner of PG Tips is under mounting pressure to pump more money into the struggling drinks giant, as fears mount over the rapid build-up of risky private loans in the global financial system.

Lipton Teas, which is under the control of Luxembourg-based buyout giant CVC Capital Partners, faces “a liquidity shortfall or possible debt restructuring over the next 12 to 18 months”, debt ratings agency S&P has warned.

It comes as Lipton battles a sharp fall in sales, shrinking market share and dwindling cash resources, increasing the chance of the company defaulting on its debts, S&P said.

“We view the debt burden as unsustainable,” it said in a recent note.

Lipton is sitting on a €3.2bn (£2.8bn) debt pile, roughly equivalent to ten times last year’s pre-tax earnings of €320m.

S&P’s analysts have a CCC+ rating on Lipton’s parent company Cuppa Bidco, putting it several notches below investment-grade status.

Separately, Moody’s has also sounded the alarm with a recent downgrade that pushed Lipton further into junk territory.

Unlike investment-grade status, which is deemed safe and reliable, so-called junk debt is issued by companies that have a greater chance of defaulting.

S&P’s warning has been made against the backdrop of growing concerns about a debt bomb waiting to go off in the private equity industry.

Market jitters are already being stoked by the emergence of several cracks in the $3tn (£2.2tn) shadow lending market, which has ballooned on the back of a flood of private equity money just as a new era of higher interest rates took off.

Among concerns of policymakers and regulators is the interdependency at the heart of the private credit industry.

The International Monetary Fund (IMF) estimates that around two thirds of private credit loans sit with private-equity sponsored companies.

Critics also cite a lack of transparency over whether loans are being properly devalued by private lenders when it becomes clear that a borrower may struggle to service its debts.

Moody’s decision to downgrade Lipton was down to “weak operating performance and continued cash burn, which is straining liquidity”, its analysts said in a note published last month.

Lenders to the company are said to be dismayed at the sudden deterioration in its financial state, with one City source claiming bondholders were “gunning” for CVC over the matter.

Lipton’s senior loans were trading at 80 cents in the euro on Wednesday – an all-time low.

CVC paid €4.5bn to buy the company from Unilever in 2022.

The deal was financed with €2.5bn of debt – much of it provided by a consortium of investment banks including Goldman Sachs, Barclays, Bank of America Corp, Citigroup and Deutsche Bank.

However, the banks quickly offloaded the vast proportion of their loans at a steep discount to some of Wall Street’s most aggressive vulture funds, including Elliott Management.

Though it’s not clear which of these still owns the debt, their presence among Lipton’s cohort of major creditors would likely complicate any attempt at a financial restructuring.

According to Moody’s, the company has drawn up a series of cash-raising measures, including improvements in working capital, VAT recovery and disposal of non-core assets, which Lipton expects to generate around €160m.

However, even if these initiatives are successful, the capital structure is likely to remain unsustainable because earnings are going backwards, it warns.

With Lipton estimated to be forking out between €250m and €270m in interest payments annually, S&P warns that its financial headroom has “diminished considerably” and the company “may depend on additional funding sources”.

As of June, Lipton had just £17m left of a £375m borrowing facility.

Its strained balance sheet has limited the company’s ability “to withstand any unexpected operating shocks or additional working capital volatility”, S&P added.

CVC ended three decades as a private firm last year when it joined the Amsterdam stock exchange.

The €15bn flotation crystallised an estimated €4.1bn paper fortune for senior CVC figures, the bulk of it shared among its three co-founders Donald Mackenzie, Rolly van Rappard, and Steven Koltes. Mackenzie reportedly sold shares worth approximately €163m.

CVC declined to comment.

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