An in-depth look at the key trends reshaping the opportunistic credit space
Distressed debt and opportunistic credit strategies are at a significant developmental crossroads, with fundraising down year-on-year but opportunistic vehicles seeing a recent boost. In this special report we explore five developments market players expect in coming months, sharing their outlook for rising defaults and changing interest rates, the rise in co-operative agreements and asset-based lending strategies, and how LP appetites are changing.
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From higher interest rates to challenges in commercial real estate, a host of factors have conspired to push more borrowers into financial distress in recent months. And with a significant maturity wall looming, investors in the evolving opportunistic credit and distressed debt space could be ideally positioned to step in.
Opportunistic credit finds favour as distressed loses its appeal
Several big hitters are now in the market with ambitious opportunistic credit strategies, hoping to capitalise as LPs turn away from conventional distressed plays. So, what has prompted this change of tack?
10 key trends: Higher-for-longer interest rates
Persistently high rates have transformed the landscape for opportunistic credit strategies, as borrowers seek cheaper refinancing solutions.
10 key trends: ‘All-weather’ approaches
GPs are increasingly pitching opportunistic credit strategies as an evergreen investment option for every part of the cycle.
10 key trends: The commercial real estate opportunity
A challenging property market is making for just the right amount of distress for opportunistic GPs.
10 key trends: The looming maturity wall
A swathe of borrowers searching for refinancing over the next few years presents fresh opportunities.
10 key trends: Bank capital releases
As banks seek to shed liabilities, there’s an opportunity for GPs to step in and pick up some bargains.
10 key trends: The shape of European stress
Weak European growth and rising defaults are tipping companies into the sweet spot for opportunistic credit.
10 key trends: Changing dynamics in US credit
The prospect of a rising default rate in the US is opening new avenues around liability management solutions.
10 key trends: Asia-Pacific’s distressed bonanza
There is plenty of capital for distressed debt strategies in the Asia-Pacific region, but putting it to use raises unique challenges.
10 key trends: The rise of credit secondaries
More and more LPs are embracing opportunities in credit secondaries, but the sector remains undercapitalised.
10 key trends: Difficult questions for distressed
A lack of genuine distressed debt opportunities is leading some GPs to consider whether this strategy is still a valid play.
Will there be a horde of UK zombies?
Tough times may lie ahead for the UK – but will expectations for distressed activity be realised this time?
Allen & Overy: The growing role for CLOs in restructurings
Collateralised loan obligations are back in favour in financial restructurings, helped by their dominance in leveraged credits and greater flexibility in documentation, say Nick Charlwood, John Goldfinch and Tim Watson, partners at Allen & Overy.
Data: Distressed fundraising driven by economic cycles
Fundraising for distressed debt strategies continues to follow broader trends, after a poor 2023 for fundraising across the private credit space.
Sculptor Capital Management on the benefits of casting a wide net
Whether it’s corporate credit, asset-based loans or real estate debt, opportunistic investing requires flexibility to identify the best rewards, say Sculptor Capital Management’s Brett Klein and Udai Bishnoi.
Why the struggling, high-quality firm is not a contradiction
Some US mid-market borrowers are finding things tough, but there can be a lot of value in helping them through their problems.
Arrow Global: Staying local for diversified investment opportunities
There are opportune markets available for experienced local lenders, say Arrow Global’s Toni McDermott and Richard Roberts.
Kartesia: Private debt offers the necessary flexibility in times of stress
Whether it is to support founders seeking the next phase of growth or to address liquidity needs, opportunistic credit is a growing focus for private credit, says Guillermo Ferre, head of Spain and Italy at Kartesia.
Alter Domus: Opportunistic credit is ready for action
Opportunistic credit funds are gearing up for a busy year as increased interest rates start to bite, says Alter Domus group sector head of debt capital markets Greg Myers.
Barings on taking an all-weather approach to opportunistic credit
Opportunistic credit involves bespoke financing across a broad set of market environments, says Bryan High, head of global private finance and capital solutions at Barings.
WeWork: A former unicorn in a real-world bankruptcy
SoftBank’s March 2023 uptiering has met resistance in the wake of WeWork’s November chapter 11 filing.
Permira: Leveraging a broad platform
Continuing bank retrenchment and an underserved lower mid-market have tilted the playing field in favour of a growth-orientated approach to opportunistic credit, says Ian Jackson, head of Permira Strategic Opportunities.
LCM Partners: The value of a steady hand
The European NPL market opportunity set is growing for those with experience and established bank relationships, says Paul Burdell, co-founder and CEO of LCM Partners.
Zetland Capital: Capturing European dislocations in a new macro environment
Special situations investing in Europe is changing, says Ahmed Hamdani, founder and managing partner at Zetland Capital.
The distress and special situations market has seen plenty of false dawns, most recently when the covid pandemic offered only a brief rather than long-lasting opportunity. But with a “higher for longer” interest rate environment and a refinancing wall that may take a couple of years to manifest itself, this time might be different.
Macroeconomic trends such as covid-19 and the Ukraine crisis are fuelling a return to distressed debt investing. But just how will that play out? This special report looks to analyse the key trends facing the sector and what investors are really looking for.
Distressed debt remains one of private debt’s most popular strategies with investors, but it’s also one that demands perfect timing. Get it right and rich rewards beckon, but get it wrong and investor unrest won’t be far away. We explore all the key themes in a series of articles
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