Chart of the week: Falling commodity prices spell opportunity for distressed debt

Distressed debt fundraising has overtaken all other strategies in the first four months of 2016.


This week, International Finance Corporation and Apollo Global Management announced the launch of a $1 billion distressed assets vehicle, focusing on distressed debt in emerging markets.

It comes as clouds hang over companies exposed to commodity prices. A study of more than 500 oil and natural gas producers by Deloitte in February found that a third of publicly-traded oil companies face a high risk of bankruptcy this year. Steel companies, such as Arcelor Mittal, have also suffered plunging share prices as they deal with significant annual losses.

Private debt fund managers are sensing an opportunity, with distressed debt proving one of the most attractive strategies in recent years, according to PDI Research & Analytics.

Since 2010, closed-ended distressed debt funds have raised $172.5 billion, $26 billion more than the next most popular investment strategy, subordinated debt.

Distressed debt dipped last year amid high company valuations and a wave of mergers, but that confidence seems to be dwindling. More private debt capital with a focus on distressed investments has been raised in the first four months of 2016 than for any other strategy.

Of the $10.1 billion gathered, the vast majority is focused on developed markets, including North America and Western Europe. The largest vehicle is Lone Star’s Real Estate Fund V, which raised $5.9 billion for investments into distressed real estate assets.