The market in 2009 offered distressed debt investors plenty of opportunities to cherry pick amongst troubled over-leveraged businesses and companies in distress, according to a report by Debwire.
Opinions gauged from respondents to this year’s European Distressed Debt survey, produced in association with Cadwalader, FTI and Rothschild, indicate that although there is light on the horizon, the challenge for distressed investors will be to find value in a rapidly moving market where surging debt prices and poor liquidity are both prevalent factors.
The majority of respondents expect European restructuring to peak during the first half of 2010, with covenant resets/amendments and debt buybacks set to dominate market activity.
For the second year running, property and construction was identified as having the most distressed debt opportunities, with 54 per cent of respondents citing this sector as having most potential. Leisure and media where second and third runners-up, winning 39 per cent and 45 per cent of respondents’ votes respectively.
The UK remains the number one jurisdiction of choice for distressed investors (47 per cent), finishing ahead of Germany. Enthusiasm for Spain has diminished whereas EU Eastern Europe has now usurped France, Scandinavia and Italy in investor affections.
Private equity respondents consider overleveraging the most likely trigger for restructuring of their portfolio companies, while only 20 per cent of sponsors picked overall economic decline as their first choice.
Senior debt remains the most attractive debt instrument, but the re-emergence of the high yield market has consolidated its second place amongst investor preferences.
In a marked change from the 2009 survey, 43 per cent of private equity respondents said that the attitude of their banking syndicates posed the greatest challenge to the restructuring of their corporates.
“Peak European restructuring volume lies ahead, not behind us,” says Richard Nevins, senior partner, Cadwalader. “Government support of financial institutions, massive liquidity injections and low interest rates have delayed, but can’t indefinitively avoid, long overdue deleveraging in the private sector.”
Kevin Hewitt, senior managing director from FTI Corporate Finance believes normality in the credit market is unlikely to return during 2010.
“Whilst the major banks in the UK have a lot of money available to put into the market, 2010 will continue to see an abundance of caution,” he says. “Selective refinancings will take place only on the basis of material debt amortisation and properly structured covenant documents with security packages that give the banks appropriate rights.”
