Distressed debt investors are pinning their hopes on a second wave of insolvencies in 2010 after banks' refusal to write off bad loans made 2009 something of a damp squib.
Market participants at the launch of Debtwire's European Distressed Debt survey in London today could not hide their frustration at the sticking plaster approach that has been applied to many ailing companies. "Some of these capital structures are irretrievably broken and it doesn't do any good to pretend that they're not," said Richard Nevins, senior partner at Cadwalader, Wickersham & Taft.
The majority of survey respondents expect European restructuring to peak in the first half of 2010 as the economy improves and quantitative easing is withdrawn. Companies that have limped along through the downturn by stripping costs to the bone may struggle to build inventories and sales growth without a cash injection.
“There is still some money to be made in a second wave,” said Shaun O’Callaghan of FTI Consulting. “Companies have stopped talking about cutting back and are looking at some level of investment but we are seeing a parting of the ways between those companies that can invest and those that can’t find the money.”
As well as the usual favourites like property and construction, distressed debt investors rated the media and leisure sectors as offering significant opportunities in 2010. But O'Callaghan warned that it was important to differentiate as technological changes like the rise of the internet mean that some business models won’t improve. “Traditional media businesses that can’t make the transition will face problems,” he said.