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With $ 1 trillion in hardship, debtors find junk

(Bloomberg) – For investment firms profiting from buying the debt of troubled companies, this seemed like a once-in-a-lifetime opportunity: a pile of $ 1 trillion in bad bonds and loans in America alone when the pandemic hit the markets broke down in March last year. But after a massive federal bailout and rock-bottom interest rates kept even some of the shakiest companies afloat, those juicy targets have shrunk to less than $ 100 billion. The bad debt specialists, who once had to spend $ 131 billion last year, are rummaging through bargains that are always elusive. Even the real estate sector, which has been ravaged by offices, hotels and shops after the pandemic, has managed to avoid an epic wipe for the time being. How do distressed investors – often among the most savvy in the markets – get involved? all that money? Some, like Caspian Capital, decided to give some money back to investors as the rewards would no longer justify the high risks. Others look further afield. Olympus Peak Asset Management addresses unpaid supplier claims in companies that are already bankrupt. Arena Investors looks for convertible bonds and real estate loans that have been issued by banks. And business giants like Oaktree Capital Management are looking for opportunities in Asia: “People don’t invest, they just hunt,” said Adam Cohen, Caspian’s Managing Partner. This comes with an added dose of risk, according to Howard Marks, co-founder of Oaktree, the dean for distressed investments. “To get higher returns these days, you have to be willing to give credit to someone who isn’t clearly coming back,” Marks said in a Bloomberg television interview. The money continues to flow nonetheless, and the managers have made some progress in finding new places to express it. According to advisors at Preqin.For Arena Investors, a $ 2.2 billion investment firm that has gotten smaller and nimble, around 40 funds – from Oaktree to Angelo Gordon & Co. – have around 35 billion between this year and last year US dollars collected. said the chairman of the board, Dan Zwirn. That’s because 80% of troubled companies owed less than $ 1 billion in early April, and about 60% of companies that filed for bankruptcy last year owed less than $ 500 million. That leaves too many larger firms chasing after the few big situations that are left. “When you write checks for $ 100 million, the competition is excessively high,” said Zwirn. Arena wagered almost all of the $ 519 million it raised on a Special Opportunity Strategy last year that targets industries displaced by the pandemic. Among other things, they worked in the following areas: real estate loans, loans for special situations in the areas of energy and aviation as well as litigation financing. Closer LendingFund managers like Olympus Peak are also looking for companies too small to capitalize on the seemingly limitless bond and equity markets that were boosted by the unprecedented wave of federal incentives last year. Large borrowers in the public market have now largely been taken over. Smaller companies, on the other hand, have relied more on banks for liquidity. And the percentage of banks making it harder to get a loan is still high at 11.4%, according to the Federal Reserve, well above the 1.9% average since the great financial crisis you need your position hold because if you sell them there is nothing else to buy, ”said Jason Dillow, chairman of the board of $ 8.4 billion Bardin Hill Investment Partners, according to those familiar with the portfolios, Bardin Hill is trying various tactics to drive returns To Boost: In early February, Bardin Hill raised $ 600 million on privately negotiated loans and deployed about 78% of that. The money went to high-end cruise lines, fitness, technology, healthcare, and education, as well as alternative assets like insurance-covered receivables. Olymppus Peak, which operates a $ 1.4 billion hedge fund, launched a $ 300 million fund this month in bankruptcy claims. So-called trade receivables are often small, illiquid and labor-intensive and therefore less attractive for a larger fund. Angelo Gordon raised $ 3.5 billion at the start of the pandemic and invested everything plus $ 1 billion in recycled capital. The company preferred high-yield, privately-negotiated financing with strong protections for its investments identified in its agreements. Centerbridge Partners’ Special Credit III strategy invested $ 1.8 billion in March and April 2020. Since then, 90% of these positions have been negotiated. The money has been redeployed into growth companies like HCI Group Inc. and bailout funding for companies like cinema chains like AMC Entertainment Holdings Inc., UK subsidiary Odeon and Cineworld Group Plc. In February, Monarch Alternative Capital had invested more than 60% of the $ 3 billion it raised last year for its latest distressed loan fund. The company lent bankrupt companies after the pandemic temporarily closed them. The plan included a franchisee for Wendy’s and Pizza Hut, Ann Taylor’s parent company Ascena Retail Group, and the owner of Chuck E. Cheese. Monarch looked beyond the pandemic, stepping up investments at times to keep the companies alive. DE Shaw & Co. The company on Tuesday raised $ 1 billion for its latest private loan fund targeting stressed assets and financing with a 5-year investment window. For Cohen’s $ 3.5 billion Caspian capital, NPL investing is too tight a mandate in today’s world. The firm expanded into stressed-out firms. The company is aiming for returns of 10% to 15% or loans that trade between 70 and 90 cents on the dollar but are not in arrears. Investors got $ 565 million back. “Money always burns a hole in your pocket,” said Cohen. “The best you can do now is not to make a mistake. This can save you a lot more money than mediocre trades can bring you. “Of course, companies with patient capital don’t have to invest right away, and there could be a bigger wave of opportunity after policymakers scaled back economic support. Meanwhile, Oaktree intends to raise $ 15 billion for its latest distressed fund and its cash to be used outside the USA. So far, according to public documents, only about 10% of the committed capital has been drawn as of February. Oaktree’s pitch to investors cited nearly $ 5 trillion in opportunities across Asia, mainly China, including bad loans, bonds, shadow bank loans and leveraged loans. The remaining question is whether the remaining distressed assets are for recovery or whether they are simply being kept afloat by a historic dead cat leap that does not last. “If you had a fundamentally strong business, you would have found the liquidity to meet the challenges of 2020,” said Chris Acito, chief investment officer of Gapstow Capital Partners, a New York-based firm focused on the selection of loan fund managers. “Many of the distressed companies have flawed business models that are difficult to revive.” (Updates with DE Shaw on last point. Arena Investors’ name was corrected in an earlier version.) Other articles such as Find it with us at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP