ANALYSIS-Distressed funds eye European firms as virus help schemes ease

By Abhinav Ramnarayan, Clara Denina and Chibuike Oguh

LONDON/NEW YORK, Aug 28 (Reuters)Funds which purchase debt firms are not in a position to repay are on the point of deploy their massive money piles in Europe, betting the easing of widespread authorities financial help schemes will result in a pick-up in company restructurings.

Central financial institution bond shopping for together with fiscal help and markets receptive to capital hikes has meant the variety of massive firms pressured to restructure their debt has been comparatively low this yr regardless of the financial fallout from the coronavirus pandemic.

Swissport final week turned the primary high-profile distressed funding in Europe for the reason that virus took maintain, with a consortium of funds led by Apollo World Administration APO.N transferring in.

The deal is prone to be the primary in a string of main restructurings in Europe slated for this autumn, legal professionals and distressed buyers mentioned.

“We anticipate a decide up in distressed trades as firms that have to restructure come to the market,” mentioned Eric Larsson, a portfolio supervisor for particular conditions funds at Alcentra, a part of BNY Mellon. “Half-a-dozen excessive profile high-yield and leverage mortgage offers (are possible) to emerge,” he added.

It isn’t simply firms within the journey, aviation and retail sectors that are anticipated to want funds to assist them by means of a painful interval of low development. Oil and gasoline firms – together with Britain’s Premier Oil PMO.L which lately introduced a $530 million debt restructuring – are additionally fighting debt.

Dutch retailer Hema is ready to be taken over by its bondholders by means of a debt-for-equity swap, whereas Spanish paper producer Lecta Group, already within the fingers of bondholders, continues to be engaged on a recapitalisation, banking sources mentioned.

For an summary of firms searching for restructuring, click on right here.


Distressed funds have been elevating capital lately in anticipation of an financial downturn on the finish of a protracted financial cycle. So-called “dry powder” at these funds stood at a file $84.9 billion globally in August, knowledge from Preqin exhibits.

Because the pandemic triggered the downturn, many distressed buyers stepped up their fund-raising efforts. Preqin exhibits $9.6 billion raised within the second quarter, the very best in two years.

For an interactive model of this chart, click on right here:

Within the U.S., a number of large title manufacturers, together with storied U.S. retailers resembling J.C. Penny, Neiman Marcus, Brook Brothers, and Lord & Taylor, started restrucuting comparatively quickly after the disaster erupted.

However financial uncertainty mixed with widespread authorities and central financial institution help – notably for company bond markets – has meant fewer than anticipated opportunies for distressed buyers, leaving a lot of their capital but to be deployed.

“Everybody anticipated the top of the financial cycle. Nobody anticipated COVID-19,” mentioned Joseph Swanson, co-head of EMEA restructuring for Houlihan Lokey.

“The brutal aggression of COVID has represented the proper storm: a mix of 9/11, SARS and the nice monetary disaster of 2008. It’s extremely troublesome to know tips on how to make investments,” he added.

The problem for distressed buyers is to pick the firms that may be restored to good well being after the disaster.

“When you’re sitting on capital it is an nearly unimaginable dilemma tips on how to deploy that cash with total sectors resembling aviation and leisure in monetary misery,” mentioned Paul Bagon, a restructuring and insolvency companion at regulation agency RPC.

With the Swissport deal carried out, a raft of different firms are lining as much as elevate money within the personal markets; how distressed funds reply might decide their existence.

Distressed funds have extra cash than ever before

FACTBOX-Struggling firms searching for restructuring to outlive post-Covid

(Reporting by Abhinav Ramnarayan, Clara Denina and Chibuike Oguh; Modifying by Kirsten Donovan)

(([email protected]; 0044 751 745 1044;))

The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.

Source Article