By Abhinav Ramnarayan, Clara Denina and Chibuike Oguh
LONDON / NEW YORK, August 28 (Reuters) – Funds that buy debt securities that companies are no longer able to repay are preparing to deploy their large cash reserves in Europe, betting that the easing of the government’s extensive economic support programs will lead to a resumption of corporate restructuring. companies.
Central bank bond buying, along with budget support and markets receptive to capital increases, have meant that the number of large corporations forced to restructure their debt has been relatively low this year despite the economic fallout from the crisis. coronavirus pandemic.
Last week, Swissport became the first high-profile troubled investment in Europe since the virus took hold, with a consortium of funds led by Apollo Global Management APO.N to move out.
The deal is likely the first in a series of major restructuring in Europe slated for this fall, troubled lawyers and investors have said.
“We expect struggling transactions to pick up again as companies that need to restructure enter the market,” said Eric Larsson, portfolio manager for special situations funds at Alcentra, part of BNY Mellon. “Half a dozen high yield, high level leveraged loans (are likely) to emerge,” he added.
It’s not just companies in the travel, aviation and retail industries that should need the funds to help them through a painful period of weak growth. Oil and gas companies – including UK Premier Oil PMO.L which recently announced a $ 530 million debt restructuring – is also struggling with debt.
Dutch retailer Hema is set to be taken over by its bondholders via a debt-for-stock swap, while Spanish paper producer Lecta Group, already in bondholder hands, is still working on a recapitalization, bank sources say .
For an overview of companies wishing to restructure, click here.
Struggling funds have raised capital in recent years in anticipation of an economic downturn at the end of a long economic cycle. The so-called “dry powder” of these funds stood at a record high $ 84.9 billion worldwide in August, according to data from Preqin.
As the pandemic triggered the slowdown, many struggling investors stepped up their fundraising efforts. Preqin shows $ 9.6 billion raised in the second quarter, the highest in two years.
For an interactive version of this graphic, click here: https://tmsnrt.rs/2QtvsaI
In the United States, several major brands, including reputable American retailers such as JC Penny, Neiman Marcus, Brook Brothers, and Lord & Taylor, began to restructure quite quickly after the outbreak of the crisis.
But economic uncertainty combined with widespread support from government and central banks – especially for corporate bond markets – has resulted in fewer opportunities than expected for distressed investors, leaving much of their capital to deploy. .
“Everyone expected the end of the business cycle. Nobody expected COVID-19,” said Joseph Swanson, EMEA co-head of restructuring for Houlihan Lokey.
“The brutal COVID assault represented the perfect storm: a combination of September 11, SARS and the great financial crisis of 2008. It is very difficult to know how to invest,” he added.
The challenge for struggling investors is to choose companies that can be restored to good health after the crisis.
“If you’re sitting on capital, it’s an almost impossible dilemma of how to deploy that money with entire industries like aviation and leisure in financial trouble,” said Paul Bagon, a restructuring and business partner. insolvency of the RPC law firm.
With the deal with Swissport concluded, many more companies are lining up to raise liquidity on the private markets; the reaction of troubled funds could determine their existence.
Struggling funds have more liquidity than ever before https://tmsnrt.rs/3jjQoNQ
FACTBOX – Struggling businesses looking to restructure to survive after Covid
(Reporting by Abhinav Ramnarayan, Clara Denina and Chibuike Oguh; Editing by Kirsten Donovan)
((Abhinav.Ramnarayan@thomsonreuters.com; 0044 751 745 1044;))
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