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Bloomberg

With a Trillion Dollars of Ordeals Missing, Debt Hoarders Have Found Leftovers

(Bloomberg) – For investment firms that make a profit buying bad corporate debt, it seemed like the opportunity of a lifetime: a pile of $ 1 trillion worth of troubled bonds and loans in the Americas alone when the pandemic plunged markets into Last March. But after the massive federal bailout and low interest rates that kept even some shaky companies afloat, those exciting targets have dropped below $ 100 billion. That’s what has left troubled debt professionals, who at one point last year had $ 131 billion to spend, in search of increasingly elusive deals. Even the real estate sector, which has been hit hard after the epidemic closed offices, hotels and shops, has now managed to avoid eliminating the crisis in epic ways. So how do distressed debt investors, often among the smartest in the markets, distribute all that cash? Some, like Caspian Capital, have decided to return some of the money to investors because the bonuses will no longer justify the increased risk, and others are looking further. Olympus Peak Asset Management is indulging in things like unpaid seller claims on companies that are already bankrupt. Arena Investors carefully selects convertible bonds and mortgages offered by banks. Business giants like Oaktree Capital Management are working in Asia looking for opportunities. “People are not investing, they are just chasing,” said Adam Cohen, Caspian’s managing partner. And that comes with additional risk assistance, according to Oaktree founder Howard Marks, dean of troubled investing. “To get higher returns these days, you have to be willing to extend credit to someone who is clearly not coming back,” Marks said in an interview with Bloomberg TV. Yet the money keeps pouring in and managers have made some headway in finding new places to put it. About 40 boxes, from Oaktree to Angelo Gordon & Co. raised about $ 35 billion between this year and last year, according to Preqin consultants. For Arena Investors, a $ 2.2 billion investment firm, it is getting smaller and smarter with its advantages, said CEO Dan Zwern. This is because 80% of companies in trouble at the beginning of April had less than $ 1 billion in debt, and about 60% of companies that filed for Chapter 11 bankruptcy last year owed less than $ 500 million. This has left many of the larger companies chasing the few remaining great positions. “When you write checks that exceed $ 100 million, the level of competition is excessive,” said Zwern. Last year’s opportunity strategy, targeting industries displaced by the pandemic. Among the things they’ve been active in: home loans, special situations loans in energy and aviation, and financial litigation. Tighter loan servicers like Olympus Beck are also looking for very small companies to take advantage of the seemingly limitless bond and equity markets, which were super stimulated last year by the unprecedented wave of federal stimulus as top borrowers were selected in the public market. Especially now. Smaller companies, on the other hand, have relied on banks for liquidity. The percentage of banks that make it difficult to obtain a loan remains high at 11.4%, according to the Federal Reserve, well above the 1.9% average since the great financial crisis. You have to keep your position, because if you sell it, there is nothing else to buy, ”said Jason Dello, CEO of $ 8.4 billion Bardin Hill Investment Partners. They try a variety of tactics to collect the proceeds, according to people familiar with the governor: Bardeen Hill raised $ 600 million for a privately negotiated loan in early February and posted about 78% of it. The money went to advanced cruise lines, fitness, technology, healthcare and education, along with alternative assets like insurance-backed claims. Olympus Peak, which operates a $ 1.4 billion hedge fund, started a $ 300 million fund this month that focuses on sellers’ claims arising from bankruptcies. Alleged business claims are often small, illiquid and laborious, and therefore less attractive to a larger fund, with Angelo Gordon raising $ 3.5 billion at the start of the pandemic and investing it in full, plus $ 1 billion in recycled capital. He has preferred privately negotiated financing operations with high returns and strong protection for his investments included in his agreements. Centerbridge Partners Private Credit Strategy 3 invested $ 1.8 billion in March and April 2020. Since then, 90% of these positions have been traded. The funds were reallocated to growth companies such as HCI Group Inc. and rescue financing for companies such as movie networks, including AMC Entertainment Holdings Inc. and its British subsidiary Odeon and Cineworld Group Plc. In February, Monarch Alternative Capital invested more than 60% of the $ 3 billion it raised last year for its troubled trust fund. The company lent out bankrupt companies after the pandemic temporarily shut them down. The list included a franchise of Wendy’s and Pizza Hut, parent company of Ann Taylor’s Ascena Retail Group, and owner of Chuck E. Cheese, with Monarch looking beyond the pandemic and at times leveraging its investments to keep the companies afloat. Business. The company raised $ 1 billion for its latest private trust fund targeting stressed assets and finances with a 5-year investment window. The company expanded to companies that were only confirmed. They are looking for returns of 10% to 15%, or loans that trade between 70 and 90 cents on the dollar but are not in default. Even with this wider range, Caspian decided to close a $ 500 million compensation strategy fund after cashing in when prices recovered. Investors recovered $ 565 million, and Cohen said, “Money always puts a hole in your pocket.” “The best thing to do right now is not to make a mistake. This can save you much more money than you can earn in the middle of the negotiation. ” Sure, companies with patient capital don’t have to invest right away, and No Opportunities could be a bigger wave after lawmakers cut back on financial support, according to David Leibovitz of JPMorgan Asset Management. Meanwhile, Oaktree is looking to raise $ 15 billion for its latest troubled fund and put its money to work outside the U.S. So far, public filings show, only about 10% of its committed capital has been used. in February. Oaktree’s offer to investors cited nearly $ 5 trillion in opportunities in Asia, primarily China, including non-performing loans, bonds, shadow banking, and leveraged loans, and the long-awaited question is whether troubled assets are still headed for recovery or if they are simply standing due to a historic setback of dead cats that will not last. “If you have a fundamentally strong business, you can find the cash you need to overcome the challenges of 2020,” said Chris Asetto, chief investment officer at Gapstow Capital Partners, a New York-based firm that specializes in selecting trust administrators. “Many companies that still have problems have flawed business models that will be difficult to revive.” (Updates with DE Shaw at endpoint. Previous version corrected Arena Investors name) For more articles like this, visit us at bloomberg.com Subscribe now to stay on top of the most trusted business news source © 2021 Bloomberg LP

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