SOURCE: The Mergermarket Group
NEW YORK, NY--(Marketwire - Jan 30, 2013) - Debtwire, in association with Bingham McCutchen LLP and Macquarie Capital, today announced the findings of the eighth annual North American Distressed Debt Market Outlook survey. The survey's findings show that investors have become accustomed to operating in an environment with low rates of default. This is also expected to be the status quo for 2013.
Money managers have been forced to reassess strategy and expectation. The lack of opportunity over the past months for distressed-focused funds and those likely to take on event-driven, high risk/high reward positions has positioned money managers at a crossroad.
"The term 'Total Return' truly defines today's investment climate," said David Miller, Managing Director at Macquarie Capital. "Fed intervention requires asset managers to maintain flexible mandates and the ability to shift between asset classes to find above-average returns and/or yields."
Key findings include:
- 61% of investors prefer to allocate their distressed debt investments in the real estate sector.
- For 2013, a majority of survey participants expect returns from their distressed holdings to come via a sale of the corporate borrower to a private equity house.
- 75% of respondents said that the US economic outlook will greatly impact their decision-making over the next 12 months.
The report, available for download here, 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.
Consensus of contradiction
While respondents unanimously expect the default rate to linger below 4% in 2013 (46% say it will decrease to less than 3%), expectations for distressed returns in 2013 are elevated.
"With the Fed keeping interest rates at historical lows, it is no surprise that default rates are expected to remain low in 2013," commented Michael Reilly, co-head of Bingham's global Financial Restructuring Group. "With the ability to borrow or refinance cheaply, the low default rates should continue to hold steady in 2013."
In many respects, a fragmented view of the distressed market in 2013 is not surprising and given the recent underperformance of hedge funds and the limited opportunity that 2012 had in store, the pressure is on for 2013. Respondents expect to find these returns from asset-backed securities and convertible bonds which they identified as the most lucrative opportunities for the next year.
Despite the ever-present risk of a European economic collapse, respondents anticipate the abundance of liquid distressed investment opportunities to come from North America. Meanwhile, Latin America took the second spot as restructurings of sovereign debt backing both Belize and Argentina heated up.
"Confidence is returning to distressed investors in the Americas," said Bingham partner Tim DeSieno. "The issues in Belize and Argentina may be just the tip of that iceberg, as deep stresses have appeared and played out in large economies like Brazil and Mexico. There is even renewed energy focusing on potential US situations with some of the recent larger chapter 11 filings perhaps leading the charge."
Bingham McCutchen LLP and Macquarie Capital commissioned Debtwire to interview 100 distressed debt investors, including hedge fund managers, sell-side trading desks and other asset managers on their expectations for the North American distressed debt market in 2013. Interviews were conducted over the telephone in November and December of 2012. Responses were collated by Debtwire, and presented to the commissioning firms in aggregate. This is the eighth year Debtwire has released the study.