Demand Persists for Distressed Debt Specialists
Despite allegations that Countrywide helped to destabilize the mortgage market, a handful of former Countrywide execs are starting a mortgage company to snap up mortgage assets at cheap prices. Former Countrywide Financial Chief Operating Officer, Stanford Kurland, has created a mortgage company that will focus on buying loans from financial companies trying to reduce their mortgage exposure, according to Reuters. The report states that at least nine other former Countrywide officials are joining Kurland in founding the Calabasas-based Private National Mortgage Acceptance Co. (PennyMac). BlackRock and hedge fund firm, Highfields Capital Management, are backing the new company seeking to raise $2 billion to buy delinquent residential mortgages.
Money just keeps flowing into distressed investing. Like bargain hunters, hedge funds and so-called “vulture investors” are on the hunt for opportunities in troubled situations. Amid the trend, executive search firm, A.E. Feldman, says that demand exists for investment professionals who specialize in researching distressed securities and who understand the true risks and values involved. The firm also notes that law firms are staffing up subprime teams in an attempt to address the needs of clients facing a liquidity crisis or those searching for value opportunities. A.E. Feldman reports that opportunities are opening up for attorneys with expertise in structured finance, bankruptcy, corporate restructuring and distressed debt.
As banks and investment funds shed assets to pay off debt, the $11 trillion American home mortgage market needs about $1 trillion in new investment to halt a slide in prices for loans and related bonds that began last year, according to the NYT citing research from Friedman, Billings, Ramsey & Company. With institutions desperate to sell, an incredible buyers’ market has emerged.
Hedge funds and institutional investors are launching distressed mortgage funds to take advantage of an “unbelievable” buying opportunity, according to the FT. The report quotes Steve Persky, a Principal at Dalton Investments who has been investing for two decades, as saying, “This is one of the best distressed sector opportunities I have seen in my lifetime.”
PennyMac joins more than 70 funds that have been established to mop up mortgage assets at huge discounts amid the largest drop in U.S. home prices on record, according to Bloomberg. Lehman Brothers Private Fund Investments is ramping up its exposure to distressed debt, according to Dow Jones. The report states that the group plans to begin marketing Lehman Crossroads Fund XIX LP with a $1.5 billion target and expects to allocate up to 30% of the new portfolio to distressed debt funds. Dow Jones also notes that Lehman also has begun marketing the Lehman Brothers Distressed Opportunities - a dedicated distressed debt fund of funds with a $725 million target.
Blackstone Group established a $1.3 billion fund back in December to capitalize on debt trading at cheap prices. Around the same time, Carlton Strategic Ventures, the principal transaction group of The Carlton Group, expanded its staff of investment specialists as it pursued plans to invest $1 billion in high yield commercial and residential distressed mortgage debt.
