Unstructured Finance

Catching the wave

SurferDistressed 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expect European restructuring to peak in the first half of 2010 as the economy improves and quantitative easing is withdrawn.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. 

Down at the Car Wash

Stock photo of man cleaning a Toyota car at a car wash in Tokyo June 23, 2009. REUTERS/Kim Kyung-Hoon Stock photo of man cleaning a Toyota car at a car wash in Tokyo June 23, 2009. REUTERS/Kim Kyung-Hoon After three days of hearings in a cramped courtroom at London’s Royal Courts of Justice, when the judge “blessed” lenders’ plan to take control of British car cleaning firm IMO Car Wash.

As I wrote earlier, this rare moment in the sunshine for Europe’s largest car-cleaning firm came as low-ranked junior lenders failed in their attempt to block senior creditors’ plans to take over the company as part of a debt restructuring.

On the first day of the hearings I counted no fewer than 72 people in the court as London’s distressed-debt and restructuring community queued to listen to the arguments in this landmark case. One day I ended up sitting on the floor of the courtroom next to one of London’s financial elite listening to lawyers putting forward complex legal arguments about valuation methodologies.

Doom and glee in bankruptcy

Top-class bankruptcy lawyers, vulture investors and credit experts revealed a range of emotions at a bankruptcy conference on Thursday, from doom and gloom to subdued confidence, but some comments bordered on outright glee.

Reflecting on the prospects for distressed investing opportunities this year, Michael Psaros, managing partner at KPS Capital Partners, was blunt.

“We are going to invest an awful lot of money this year,” Psaros said, during a Dow Jones restructuring and turnaround conference in New York. “We’re just very excited about this year and next.”

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