Bloomberg
After $ 1 Trillion Disasters Disappeared, Debt Collectors Find Scraps
(Bloomberg) – For investment companies that profit from buying distressed company debt, it looked like a lifelong opportunity: a bunch of $ 1 trillion in troubled bonds and loans in the Americas alone as the pandemic crashed markets last March of the year. But after massive federal aid and minimal interest rates kept even some of the shakiest companies afloat, those succulent targets have dwindled to less than $ 100 billion. That left troubled debt professionals who had to spend $ 131 billion last year looking for increasingly elusive deals. Even the real estate sector, which has suffered after the pandemic closed offices, hotels and shops, has so far escaped an epic bankruptcy. all this money? Some, like Caspian Capital, decided to return some of the money to investors because the reward would no longer justify the high risks. Others look further. Olympus Peak Asset Management deals with things like unpaid supplier claims in firms that have already gone bankrupt. Arena Investors selects convertible bonds and real estate loans written off by banks. And business giants like Oaktree Capital Management are scouring Asia for opportunities. “People don’t invest, they just chase,” said Adam Cohen, managing partner at Caspian. And that comes with added risk, according to Oaktree co-founder Howard Marks, dean of distressed investments. “To get higher profits these days, you have to be willing to lend to someone who clearly won’t come back,” Marks said in an interview with Bloomberg TV. However, money continues to come in and managers have made some progress in finding new locations to host it. According to consultants Preqin, about 40 funds – from Oaktree to Angelo Gordon & Co. – for the period from this year to the last, they raised about 35 billion dollars. said CEO Dan Zwirn. That’s because 80% of troubled companies had less than $ 1 billion in debt in early April, and about 60% of companies that filed for bankruptcy last year had less than $ 500 million in debt. This has resulted in too many large firms chasing the few remaining serious situations. “When you write checks for over $ 100 million, the level of competition is overwhelming,” Zwirn said. Arena spent nearly all of the $ 519 million it raised on the special event. Opportunity strategy last year targeting industries affected by the pandemic. Among other things, they actively participated: real estate loans, lending to special situations in the energy and aviation sectors, and financing of litigation. Tighter lending Fund managers like Olympus Peak are also eyeing companies too small to leverage seemingly limitless bonds and stocks. markets that were hit by an unprecedented wave of federal stimulus last year. By now, mainly large borrowers from the public market have been attracted. On the other hand, smaller companies relied more on banks to provide liquidity. And the percentage of banks making loans difficult is still high at 11.4%, according to the Federal Reserve, well above the 1.9% average since the great financial crisis. “If you can only deal with the challenges of the public market, you’re simple,” said Jason Dillow, CEO of $ 8.4 billion Bardin Hill Investment Partners. Largest Poverty / Exceptional Situations Funds 2020-2021. According to people familiar with the portfolios, they are trying to use various tactics for profit: in early February, Bardin Hill raised $ 600 million for a private loan, and used about 78% of that amount. The money went to luxury cruise lines, fitness, technology, healthcare and education, as well as alternative assets like insurance payments. Olympus Peak, which operates a $ 1.4 billion hedge fund, launched a $ 300 million fund this month to do so. supplier claims arising from bankruptcy. So-called trading requirements are often small, illiquid and labor intensive, and therefore less attractive to a larger fund. Angelo Gordon raised $ 3.5 billion at the start of the pandemic and invested it all, plus $ 1 billion in secondary capital. He gave preference to financing through private negotiations with high returns and reliable protection of his investments, as spelled out in his agreements. Centrebridge Partners’ Special Credit III strategy invested $ 1.8 billion in March and April 2020. Since then, 90% of these positions have been sold. The cash was reallocated to growing companies such as HCI Group Inc. and funding to bail out businesses such as movie theater chains, including AMC Entertainment Holdings Inc., its UK subsidiary Odeon, and Cineworld Group Plc. As of February, Monarch Alternative Capital has invested more. more than 60% of the $ 3 billion raised last year for the latest NPL fund. The firm was lending to bankrupt businesses after the pandemic temporarily shut them down. The list includes franchisees Wendy’s and Pizza Hut, Anne Taylor’s parent company, Ascena Retail Group, and owner of Chuck E. Cheese, while Monarch looks beyond the pandemic and ramps up its investments from time to time to keep the company afloat. The company said Tuesday it raised $ 1 billion for its latest private lending fund, which targets distressed assets and financing with a five-year investment window, the company said Tuesday. For Cohen’s $ 3.5 billion Caspian Capital, investing in troubled debts is too narrow a mandate in today’s world, so the firm has expanded into firms that are simply under stress. He is looking for rates of return between 10% and 15%, or loans that trade between 70 and 90 cents per dollar, but are not defaulted. Even with this broader line of business, Caspian decided to close its $ 500 million deployment strategy fund after cashing in as prices rebounded. Investors returned $ 565 million. “Money always burns a hole in your pocket,” Cohen said. “The best thing you can do now is not to be wrong. It can save you a lot more money than mediocre deals can bring you. ” Of course, firms with patient capital don’t need to invest right away, and politicians say they could have a big wave of opportunities after politicians cut back on economic support. David Lebowitz of JPMorgan Asset Management. Meanwhile, Oaktree is trying to raise $ 15 billion in its latest troubled fund and leverage its money outside of the US. February. Oaktree’s address to investors highlighted nearly $ 5 trillion opportunities in Asia, mainly in China, including non-performing loans, bonds, shadow bank loans and leveraged loans. The unknown question is whether the distressed assets that remain are meant to recover, simply being kept afloat by the historic rebound of the dead cat that won’t last long. “If you had a fundamentally strong business, you could find the liquidity to meet the challenges of 2020,” – Chris Acito, chief investment officer at Gapstow Capital Partners, a New York-based firm that specializes in the selection of fund managers. “Many businesses that are still struggling have imperfect business models that will be difficult to recover.” (Updates from DE Shaw in the last paragraph. In the previous version, the name of Arena Investors was corrected). To find out more about such articles, visit us Sign up now to stay updated on the most trusted sources of business news. © 2021 Bloomberg LP
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