The private equity industry is under serious pressure right now.

With the Super Crash on the way, financial stocks are taking a beating – particularly private equity stocks like Apollo (APO), Ares (ARES), KKR (KKR), Blackstone (BX), Carlyle (CG), and Fortress (FIG). The thing all of these companies have in common is heavy exposure to the high debt levels that built up since the financial crisis. The market is telling us that it is very worried that the Debt Supercycle is over and that a lot of this debt isn’t going to be paid back.

But the private equity meltdown also pinpoints something very important.

It tells you the exact stage this credit cycle has reached – if you know where to look.

Private equity firms serve as a startlingly accurate credit barometer. The less productive their behavior, the more likely the cycle is reaching its late stages.

When credit is mispriced, the credit cycle is far advanced, and debt investors should be running in the other direction from bond and loan offerings involving private equity?owned borrowers….because private equity firms are doing two destructive things.

And that’s what we saw up until the end of 2014 when the music in the credit markets stopped.

Here’s what to watch for…

The “Dividend Deal” Means Big Losses for Lenders

The first “private equity indicator” I watch for is an increase in the frequency of “dividend deals.”

Also known as a “dividend recapitalization,” this infamous transaction involves a private equity?owned firm borrowing money to pay a dividend distribution to its owners. We’ve seen this behavior all over the news lately – KKR-backed GenesisCare seeking $285m in loans, American Tire Distributors acquiring $805m in junk bonds to pay dividends to TPG Capital, JCrew borrowing $500 million to cash out its shareholders, and Vogue International LLC borrowing over $200 million to pay a shareholders’ dividend to The Carlyle Group.