Investing in European Distressed Debt
Europe Got Problems!
We Know That
European economic and financial woes are well known and has created an opportunity for hedge funds and distressed debt investors. The legal processes surrounding restucturings and bankruptcies are different for the 20 European nations and can make analysis difficult. Large US investors such as Avenue Capital, Appollo Management, Baupost, Centerbridge, Oaktree, Carlyle, KKR, Cerberus and King Street Capital have caught the sent. Notable European restructurings: Thomas Cook, Premier Foods and La Senza. We expect banks in Europe to be selling loans and other assets for the remainder of 2012 and to continue selling during the first half of 2013. With constant headline risk, our advice to investors is to focus on senior debt and invest slowly over time. Investors who invest on value will make money over time. Time will take care of everything. Senior debt in Europe currently trades around 50 cents on the dollar versus about 70 cents in the US.
US Distressed Debt Market Outlook
Over the past two years most hedge funds and distressed debt investors have gotten returns between 0% and +10% annually. Our model porfolio, which has been focused on senior debt, has had a number of high return investment recommendations during this period. They include: Smurfit Stone,Tribune Company, A&P, NewPage Group, Ambac Financial and Ambac Assurance. We continue focus on senior debt of large well known companies such as Eastman Kodak and AMR, avoiding the bottom tranches of the capital structure of companies in Chapter 11 Bankruptcy. As a senior creditor your downside is protected with attractive upside potential.
Distressed Debt Opportunities
Distressed debt investing is a matter of opportunity and execution. Selecting companies that can reward investors with double digit returns is possible but requires investing insight including good research, analysis and timing.
Stephen P. Vlahos
Download Performance Graph (1:10-6::12)
Your credit rerpot is updated monthly by lenders. As you pay this debt down, every month it will be rerpoted that your balance is lower. So every month your score will improve because not only will you have an on-time payment (which gets you a couple of points) but you will increase your debt to available credit ratio, which will also get you points. If you pay that entire debt off all at once, you could see a 20+ point jump in your score in a month. There are calculators online that will allow you to see what would happen if you change things about your credit rerpot. Bank of America has one, but I think you have to sign up for their credit monitoring to use it.Do *NOT* cancel any unused credit cards. It will lower your FICO score. Part of your credit score is determined by the ratio of your outstanding balances to your available credit limits. If you close accounts, this number goes down and so does your score!
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