NEW YORK, Jan. 26 /CNW/ - Ongoing macroeconomic and sovereign-related
issues still have a lot of room to run in 2011, according to the sixth
annual North American Distressed Debt Market Outlook Survey released
today by Debtwire, Bingham McCutchen LLP and Macquarie Capital.
While equity markets are offering attractive opportunities, distressed
plays still exist if you look in the right places. Nonetheless, 78% of
respondents to this survey are cautious and do not plan to increase
their distressed debt allocation in 2011.
"Despite the moderate economic recovery anticipated by most economists,
investors will continue to stress the downside when evaluating
investment opportunities," said David Miller, a managing director at
Macquarie Capital. "Lingering concerns about unemployment, housing, and
the European sovereign debt crisis will cause investors to remain
cautious and focus on the ability of companies to withstand additional
What a difference a year makes
Unlike last year's projection of default rates between 12%-13%, agencies
are now forecasting closer to historical averages of 3%. Investors in
this survey are slightly more bullish with 41% expecting default rates
to be between 3.1% and 4%, and an additional 22% of respondents
expecting them to exceed 4%.
The attractiveness of various investing instruments has also changed.
Last year, first- and second-lien loans were rated as the most
appealing opportunities, while in this year's survey, they top the
least attractive list. In their place are common shares and convertible
"There is no longer a need to be at the top of the capital structure,"
said Bingham restructuring partner Ronald Silverman. "Unlike last year
where first- and second-lien loans were the place to be, fund managers
are prepared to move away from secured debt and are ready to enter on
the ground floor."
In search of returns, respondents have once again shifted sector focus
with a pullback in energy, and a surge in real estate predicted.
Indeed, almost two-thirds of respondents think CRE defaults rates have
yet to reach their peak.
The high yield/leverage loan markets are in a bubble, according to 55%
of respondents, as there are few signs of issuances slowing down and
respondents don't expect it to burst until late 2011 or early 2012. Be
on the look out for PIK-toggle notes and covenant-lite loans.
Over one-third (37%) of respondents expect to decrease their DIP lending
activity in 2011, compared to only 11% that decreased DIP lending
activity in 2010
Nearly half (47%) of investors surveyed expect maturity extensions to be
the most common catalyst for amendments in 2011.
Respondents are split over whether the Volcker Rule's limitation on
banks' prop trading will trigger new funds
The report, available for download here: http://www.mergermarket.com/pdf/NA_Distressed_Debt_Outlook_2011.pdf, provides an in-depth review of emerging trends in the distressed debt
markets, based on the predictions of 100 experienced distressed debt
investors throughout North America.
For further information:
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