Monday, April 07, 2008

More money going after distressed debt

An article on MarketWatch by Alistair Barr entitled "Richards: 'Great' era for distressed-debt investing - His $12 billion hedge fund firm buying mortgage loans from regional banks" offers a glimpse into the thinking of another distressed debt investor, Bruce Richards of hedge fund firm Marathon Asset Management:

"This is the great distressed debt era," Richards said during a speech at a hedge fund conference organized by Institutional Investor in San Francisco. "It's the single best investment opportunity in 17 years."
 
Distressed debt investors like Richards buy bonds and other securities of troubled businesses in the hope of selling at a big profit later when the companies either recover or reorganize in bankruptcy.
 
Some hedge-fund investors say distressed debt will generate strong returns in coming years as the credit crunch triggers more corporate bankruptcies, creating a wealth of new opportunities. See full story.
 
Richards said on Monday that his firm is monitoring 150 to 200 companies that will likely file for bankruptcy protection from creditors over the next 12 to 18 months. The default rate on high-yield debt will likely jump to 8% in the next year, he added.

Further, these guys are even going after troubled mortgages:

Distressed mortgages may offer even more opportunities, Richards said.
 
Marathon has set up a mortgage servicing company in Phoenix, Ariz. with 100 staff to buy and restructure home loans. The firm is calling regional banks, which are looking to sell troubled loans. Last week, Marathon bought a package of such loans for 32 cents on the dollar, Richards explained.
 
The real estate market probably has another two years to fall before all the inventory of unsold homes is sold. By the end of 2009, house prices may have fallen 15% to 25% from the peak at the end of 2005, he predicted.

-- Jack Krupansky

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