Vulture funds prepare to feast on troubled company debt

[Celerity]

Distressed debt funds begin to circle troubled companies hit hard by the impact of the coronavirus pandemic

https://www.fnlondon.com/articles/vulture-funds-prepare-to-feast-on-troubled-company-debt-20200417

The world’s biggest distressed debt funds are gearing up to capitalise on the worst market turmoil in decades as they look to snap up the debt of troubled companies at deep discounts. The near shut down of the global economy has left plenty for the vulture funds to feed on – although competition could be fierce. “There are now huge opportunities for distressed debt funds, particularly in the transport, retail and hospitality sectors," Stavros Siokos, managing partner at real estate asset specialist Astarte Capital said. “Even core assets which are supposed to be risk-free, such as infrastructure, are at risk which is something we never expected to see in our lifetime,” he added.

For distressed debt investors and private equity firms with specialist funds, buying the bonds of companies in financial difficulty can lead to better returns as they are compensated for the higher risk they are taking. The hope is that once a company’s financial health recovers and the bond price goes up, they can make a profit. There is no shortage of cash. In the last five years, distressed debt funds have raised $130.6bn across 128 strategies to invest in troubled companies, according to data provider Preqin. And more money is being raised. On April 8, there were 50 funds in the market, looking to raise a total of $34.8bn, Preqin said.

Apollo Global Management, one of the world’s biggest investors, told investors in early April that it had invested $10bn into credit and private equity in March, and that it is looking to raise a new vehicle to find opportunities, WSJ reported. Citing people familiar with the matter, the WSJ also wrote that General Atlantic is teaming up with credit investor Tripp Smith to launch a nearly $5bn fund to provide financing to companies hit by the coronavirus pandemic.

JP Morgan Asset Management launched its first-ever special situations fund in November, raising just over $1bn to invest in stressed, distressed and event driven situations across North American and European private and public credit markets; while private equity firm CVC closed its global special situations fund in June on $1.4bn. Default rates have remained low for ten years, according to managing director Brendan Beer at Oaktree, as companies borrowed and reborrowed, thanks to easy and cheap credit. He says now cyclical default expectations are being pulled forward.

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[backtoblue]

1. Some interesting stuff about Apollo Global

Joshua Harris, a founder of Apollo Global Management, was advising Trump administration officials on infrastructure policy. During that period,[when?] he met on multiple occasions with Jared Kushner, President Trump's son-in-law and senior adviser, said three people familiar with the meetings. Among other things, the two men discussed a possible White House job...



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Apollo bought Constellis Holdings in 2016 for $1 billion. Constellis is a private military contractor that was created as a result of a merger between rival contractors Triple Canopy and Academi in 2014. Academi, founded by Erik Prince and formerly known as Blackwater USA, is best known for its role in the Nisour Square Massacre, where Blackwater guards killed 17 Iraqi civilians and injured 20.

https://en.m.wikipedia.org/wiki/Apollo_Global_Management