The liquidity which characterised markets in 2013 is poised to continue this year, according to respondents of Debtwire's 10th European Distressed Debt Outlook.
Produced in partnership with Rothschild and Bingham McCutchen, the study of more than 100 European hedge fund managers, distressed debt investors and private equity professionals, the study found two thirds of respondents expected the EU's economy to grow over the next two years.
James Roome, co-head of Bingham McCutchen's financial restructuring group, wrote In a foreword to the report: “One theme that emerged from 2013 is the ability and willingness of alternative capital providers to fill the lending gap that has been left by deleveraging banks, particularly across Southern Europe. We have also noticed increased competition amongst distressed funds and insitutional lenders trying to source and invest in opportunities which might previously have been outside their comfort zone.”
Most respondents (50 percent) felt restructuring activity would peak in the first half of 2015, when a large number of current loan instruments will fall due.
Almost half the respondents felt that more than a quarter of sub-investment grade companies would need to undergo debt restructurings this year. There was a significant bias towards Southern Europe, and Italy and Spain in particular, when respondents were asked were most European restructuring activity would occur.
More than two thirds of those surveyed boldly believed the high yield market is now “permanently open”. Interestingly, an even higher percentage (73 percent) expected an increase in high yield-related restructurings.
When asked which three instruments would offer the most attractive investment opportunities this year, the most popular choices were convertible bonds, high yield bonds, and mezzanine debt.
A larger proportion (68 percent versus 40 percent) of respondents were raising long-term capital for direct lending compared to distressed debt funds.
The long-awaited slew of disposals by European banks began last year and is likely to continue, driven by high secondary prices, the report said.
“Supply will meet the demand of US hedge funds ready to buy everything that trades and bet billions of dollars on Europe’s macro economic recovery. The show will go on,” said Debtwire's Mario Oliviero, who chaired a panel discussion at the launch of the report.