When TPG Capital sold Alltel, the US mobile phone operator, to Verizon for $28bn in June, they not only profited from the shares it owned but also from Alltel's debt it owned.

The debt has been bought only months earlier from the banks that financed the initial leveraged buy-out of the mobile phone operator. After buying the debt at a discount of about 10 per cent, Verizon will repay TPG at close to full value.

TPG insists that it bought the debt before deciding to sell Alltel. The case illustrates one of the potential conflicts of interest for private equity groups when they purchase debt at discounted prices in their own buy-out deals.

Many people criticise these practices and warn that there may be legal and ethical problems in buying debt in your own companies.

Another possible conflict of interest may arise when a company runs into trouble. If a company owns equity as well as debt they might be able to block other creditors from forcing a renegotiation of its loans.

Private equity groups say they have solid Chinese walls between their credit and buy-out teams.