Demand Growing For Distressed Debt Specialists
Distressed debt investors are eyeing leveraged buyout debt as the next big buying opportunity. New research commissioned by law firm, Bracewell & Giuliani, finds that more than 85% of distressed debt investors and other leveraged debt players polled are concerned about how companies will refinance massive debt taken on for their leveraged buyouts (LBOs). Executive search firm, A.E. Feldman, says investors, preparing for declines in the debt available to leveraged buyouts, are setting up dedicated teams to identify opportunities in the distressed debt market. The firm says candidates with strong valuation, modeling and analytical skills are poised to gain from this trend.
Blackstone Group established a $1.3 billion fund to mop up debt trading at cheap prices in the wake of the credit crisis, according to an AP report. The Blackstone Credit Liquidity Partners L.P. fund will invest in bank debt, commitments to finance corporate takeovers, collateralized debt obligations and other investments skewered by the seizure in financial markets. The firm says the strategy behind the fund is to “capitalize on the recent dislocations in the credit markets by investing in a broad range of debt and debt-related securities.”
Carlton Strategic Ventures, the principal transaction group of The Carlton Group, recently completed its first acquisition as part of its ongoing plan to invest $1 billion in high yield commercial and residential distressed mortgage debt, reports the Commercial Property News (CPN). CPN states that Carlton will be investing its own capital and has also formed a joint venture with an unnamed hedge fund to seek out more distressed mortgage debt deals. Carlton has expanded its staff of investment specialists as it hunts for bargains. According to CPN, the firm has added six distressed debt professionals to its investment team.
Goldman Sachs, TCW Group, and New York Life Capital Partners are raising more than $30 billion to increase their investments in leveraged buyouts, according to Bloomberg. The report states at least 32 firms are starting mezzanine debt funds as investors avoid bonds and loans used to finance LBOs for fear that the collapse of prices for subprime-mortgage securities will spread.
A leveraged buyout allows companies to make large acquisitions without having to commit a lot of capital. The strategy involves the use of a significant amount of borrowed money. Typically, the assets of the company being acquired, in addition to the assets of the acquiring company, are used as collateral for the loans.
LBO firms announced a record $582.6 billion of deals in the first half of 2007, data compiled by Bloomberg shows. That fell to $171 billion in the past five months as lenders were left with $370 billion of debt that they couldn’t sell to investors, according to a Sept. 24th note by analysts at Bank of America. Now, Bloomberg says that according to a Dec. 4th report by JPMorgan Chase, banks are still sitting on $230 billion of debt.
A survey commissioned by law firm Bracewell & Giuliani, which polled about 100 investors in the distressed debt, leveraged finance and high-yield bond markets, shows that about 60% of respondents expect to increase allocations for so-called “rescue” financings in the next six months - a sign that they are preparing for LBO opportunities.
