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Liquidity floods European distressed assets
31 January 2014
Funds ready to bet billions, says Debtwire
Liquid primary markets will enable companies to refinance and private equity groups to extract more dividends and hit the acquisition trail again, according to Debtwire’s 10th European Distressed Debt Outlook 2014.
“The threat of an imminent eurozone break-up that filled the headlines in 2011/2012 seems to have abated, at least for now,” said James Roome, co-leader of Bingham’s global financial restructuring group. “Trust and confidence in the markets seems to be rallying after a relatively stable 2013, although there are wide disparities in growth trajectories amongst European economies.”
In 2013, US and European economies have been boosted by central banks’ commitment to ultra-low interest rates. The combination of return-hungry investors keen to put their money to work and surging inflows into high-yield funds have sent secondary prices rocketing and helped businesses to escape workouts.
“The steady flow of distressed situations, however, will not stop. Ultimately not all issuers can afford to refinance and the swelling number of high yield issuers directly translates into an increased probability of future distressed opportunities,” said Mario Oliviero, deputy editor at Debtwire Europe.
Last year many European banks took advantage of high secondary prices to dispose of junk assets. The surface has only been scratched here, and more needs to come out to clean up balance sheets, particularly in Southern Europe.
“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,” added Oliviero.
In partnership with Rothschild and Bingham McCutchen, the study surveyed 100 European hedge fund managers, distressed debt investors and private equity professionals and provides insight into their expectations for the European distressed debt market in 2014 and beyond.