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The Recession that never was?

Patience

Even a stopped clock is correct twice a day.

 

Distressed debt opportunities have been meager. Every body has been able to get cash if needed.

PPA Model Porfolio

Our model portfolio is 60% cash, in a money market fund with a 5% yield. Some ten year government bond etf's. The remainder 40% is invested in about ten stocks that pay fat dividends and could probably appreciate.  There is an election coming up and the Federal Reserve is close to ending raising rates. The market will look good after the current pullback is finished.

Stay invested.

 

 

 

Stephen P. Vlahos

Performance Plus Advisors, Inc. 

Distressed Debt Market Outlook 2020-The New Normal

In the financial crisis that is brewing the government has stepped up to alleviate the pain from Covid-19 for many companies that would be crashing without help. We expect a gigantic wave of corporate defaults and bankruptcies. Given the dept of the crisis expect many of the defaulting companies to end up in liquidation unable to shed their debt burdens. The sheer amount of debt that will be needed to be restructured will pose a insurmountable challenge.  It is possible that the overhang of debt will choke off the flow of new capital and corporate investment.

 

List of High Yield Bond (Junk Bonds) ETF'S

Symbol            Name                                      Price                          Yield

HYG          i Shares HYB ETF                          75 3/4                          5.69 %

JNK           SPDR Barclays HYB ETF              92.8                             6.24 %

SJNK         Barclays S/T HYB ETF                  23.15                           6.38 %

HYS           Pimco HYB ETF                            83.88                            5. 3/4 %

USHY         i Shares Broad HYB ETF             34.90                            6.70 %

 

 

Stephen P. Vlahos

Performance Plus Advisors, Inc.

 

 

 

 

Distressed Debt Market Outlook-2020

Distressed debt investors have not been very active for the past few years. The hope for a sharp downturn in global markets has not happened, leaving distressed debt investors circling fewer and fewer opportunities. The bull market and low rates are keeping troubled companies alive. Many of the large hedge funds have been positioning themselves for the future by providing financing to companies that are faltering keeping them from Chapter 11 Bankruptcy.

 

 

 

Stephen P. Vlahos

Performance Plus Advisors, Inc

Radioactive Distressed Debt

 

  Distressed debt investors should not fret about the lack of attractive investing ideas. In the next five years (2020-2025), there is $600 billion dollars in debt maturities coming due, $150 billion of which is Ca1 or below. Many of these issues are trading below par and will not be able to refinance. Large companies should be okay while mid- caps and smaller companies will lack access to easy capital. Many of these high yield securities will become "radioactive" for investors. Higher interest rates, inflation and slow growth will bring many of these companies to the bone yard. 

Research on distressed debt is provided by Performance Plus Advisors, Inc.

 

 

Stephen P. Vlahos

Performance Plus Advisors, Inc

 

 

                                                              

 

 

 

 

Distressed Debt Market Outlook 2012

 

 

                             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)

 

Performance Measurement For Distressed Debt Investors

 

 Distressed Debt Research at Performance Plus Advisors, Inc.

Professional money managers and hedge funds compare their returns to a benchmark or a index of securities comparable to their funds investing style or asset classes. The index that our Model Portfolio uses as a benchmark is the HFRX Distressed Securities Index, which is provided by:

www. hedgefundresearch.com.

Our Model Portfolio is focused on distressed debt securities, primarily on securities at significant discounts to their value at issuance or at maturity. Most of the securities in our Model Portfolio are either in Chapter 11 proceedings or the perception is that they will be. We expect our Model's returns to be significantly higher than our benchmark because of our proprietary research and trading experience.

Attached is our research performance. We have an enviable research record which spans a decade. Our research is concise and relevant and provides a framework that enables our clients to organize and filter other research and information.

For more information about our research and services contact:

Performance Plus Advisors, Inc.

727-441-1305 ext 203

Stephen P. Vlahos

 

HFRX Distressed Securities Index

2012 YTD    + 3.21 %

 2011           - 8.04 %

2010           + 8.34 %

2009           - 5.60 %

2008           - 30.69 %

2007           + 3.99 % 

 

 

Performance Plus Advisors, Inc.

Distressed Debt Research Performance Graph

Download Performance Graph (1:10-6::12)

 

Distressed Debt Research-AMR Corp.

 

 

                              American Airlines

                                   AMR Corp.

 

On 11/29/2011, AMR Corporation and its subsidiary American Airlines Inc filed for Chapter 11 Bankruptcy. The Company has approximately $ 4 billion in cash and short term investments. American Airlines fleet numbers 900 aircraft. The carrier serves 260 airports in 50 countries with 1800 daily flights.

AMR's plan is to cut costs by $ 2 billion over the next five tears, mostly by reduced labor costs. The company wishes to increase revenue by $1 billion and increase flights 20 %. The Company feels the cuts in labor costs are needed to bring AMR inline with the rest of the industry.

 

Stephen P. Vlahos

 

For a complete list of AMR's public debt contact:

 Performance Plus Advisors, Inc.

727-441-1305 ext 201

 

 

 

                                      

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Distressed Debt Market Outlook 2012

 

There will be significant distressed debt investing opportunities in 2012 for those investors with research insights, restructuring experience and market timing successes. Distressed debt investors had slim pickings in 2011 and even invested into equities to chase returns. Already, in 2012 we have a number of large Chapter 11 Bankruptcies such as AMR Corporation, Ambac Financial Group, Eastman Kodak Co., Hostess Brands Inc., MF Global Holdings, and NewPage Group Inc. This is our ideal target market; large, valuable and liquid companies in Chapter 11 Bankruptcy.

In the current deleveraging credit environment companies will find it difficult to service debt levels, profits will fall. These companies will need to refiance an extreme amount of debt. The large number of leveraged buyouts created by cheap credit with inflated valuations and too much debt will send many of these companies into the protection of Chapter 11 Bankruptcy to restructure. The debt of some of these companies was issued based on aggressive corporate earnings assumptions and low borrowing costs and may find money to refiance hard to get on favorable terms. Two years ago banks couldn't take hits on leveraged loans, so they amended and extended. Banks are more conservative now with a cushion of capital and won't be lending which will make it difficult for mid sized and large companies to refinance millions and millions of leveraged loans that will be coming due.

Two Points Of View On Europe

European market turmoil is a reminder that the long term deleveraging process underway will continue. This shift will continue to create opportunities for distressed debt investors as companies and nations struggle with highly leveraged balance sheets.

The hard landing argument suggests that Europe will be forced into more deleveraging and austerity, destroying spending.

The soft landing argument suggests that the Europeans will prime the pump and flood the markets with liquidity, preventing serious demand and deflation destruction.

Buying up Debt

Vulture investors will continue swooping in on corporate carcasses, buying up debt below 25 cents on the dollar, restructure the business then sell it later for a tidy profit. Private equity will continue to target both large and mid sized distressed names such as NewPage Group and AMR Corporation.

Due to excess leverage, investors should expect lower recovery rates in the bottom tranches of the capital structure of companies exiting bankruptcy.

Distressed debt investing is a matter of opportunity and execution. Selecting companies that can reward investors with double digit returns is possibly but will require investing insight. Judgement decisions will have to be made about survivability, future prospects and the value of the target investment. 

Stephen P. Vlahos

Distressed Debt Investing 2011

 

                                 Distressed Debt Market Outlook 2011

 

Distressed debt investors looking for double digit returns in 2011 will need to be nimble and diversified. Distressed debt investors have and will continue to take more aggressive risk positions to chase returns.

Moody's expects the default rate on speculative grade debt to be between 3 % and 4 % this year, compared to 3.3 % in 2010, and 14.1 % in 2009. With that being said, there aren't as many big distressed names out there which is forcing investors to either move down the capital structure or focus on smaller less liquid companies, or equities. The distressed debt assets that investors in 2011 will choose will be up and down the capital structure, from senior secured leveraged loans to unsecured debt. Plenty of liquidity and low default rates have created an environment of high valuations and tough competition for product. Companies with over leveraged balance sheets will eventually be forced to restructure and correct. Fulcrum securities will continue to be in the senior parts of the capital structure. Recovery rates for unsecured and subordinated debt will be under pressure, due to the increase in leverage through the senior parts of the capital structure.

A robust high yield leveraged loan market has allowed companies to refinance problems into the future. Willingness to amend and extend by banks has allowed many companies to push out maturities and avoid default in the near term. Loan refinancing was the biggest use of high yield financing in 2010. We expect for this issuance to slow as interest rates begin to rise and end inexpensive high yield credit. Companies will begin to discover that they cannot overcome an over leveraged balance sheet by issuing new debt to replace old debt.

Distressed debt investing is a matter of opportunity and execution. Right now the pickings are slim for distressed debt investing ideas. Selecting companies that can reward distressed debt investors with double digit returns will be difficult in 2011 and will require investing insight. Judgement decisions will have to be made about the survivability, future prospects and value of the target investments. Often financial information is in short supply or of questionable validity.

There will be significant distressed debt investment opportunities in 2011 for those investors with research insights, restructuring experience and market timing successes.

 

 

Stephen P. Vlahos

Performance Plus Advisors, Inc.

727-441-1305 ext 201

 

 

 

Distressed Debt Investing Q1-2010

The distressed debt market is considered a subgroup of the high yield bond market. Distressed debt is defined as securities that yield at least 10% above the benchmark Treasury. Defaulted debt, our specialty, is defined as securities that trade after the issuing firm has missed an interest payment or has filed for chapter 11 bankruptcy. The returns from investing in a diversified portfolio of distressed debt securities have a low correlation with returns of most other major asset classes.

Our best strategy for investors in 2010 is portfolio diversification. Distressed debt investing can be somewhat cyclical, opportunities increase during economic slowdowns. On Feb 28, we added Smurfit Stone unsecured debt to our model portfolio at a price of 81. We expect these bonds to appreciate as this company exits bankruptcy. The holding period for distressed debt investing depends on how long a firm takes to restructure. The time varies from case to case. The chapter 11 bankruptcy process can be lengthy. Negotiations between a firm's management team and its creditors can crumble or be delayed. Alternatively, reorganization can be expedited in a matter of months. Our diversified portfolio invests both short and long term. We consider  short term trading as six months to nine months and long term as twelve to fifteen months. Investing in distressed debt involves purchasing an undervalued debt security and holding it for a period of time until the value moves to a desired level.

For the remainder of 2010 we expect the current weak economic environment to provide new opportunities for distressed debt investors. The large number of leveraged buyouts created by cheap credit with inflated valuations and too much debt will send companies into chapter 11 bankruptcy. In this distressed debt cycle a new credit environment has evolved. The abundant credit that allowed companies to borrow large amounts of debt to fund expansion and acquisitions is over. The Tribune Corp. is an prime example. The debt of some companies was issued based on aggressive corporate earnings growth assumptions and low borrowing costs. This is our targeted audience. In this new credit environment companies will begin to find it difficult to service debt levels, profits will fall. Companies will need to refinance in an extremely crowded market. Rates will certainly go up, further decreasing earnings and cash flow. The most attractive time to invest in distressed debt securities has been towards the end of a recession.

Leveraged Loans

A leveraged loan is made to a borrower who has outstanding debt rated below investment grade or below Baa3/BBB- from Moody's and S&P. Also, the company's debt to EBITDA ratio is three times or greater, and or the loan has a coupon of +125 bps or more above the Libor rate. Leveraged loans are typically secured by a lien against the assets of the borrower. This position in the capital structure provides the best opportunity for the investor to maximize their recovery in a restructuring. Leveraged loans have higher recovery rates than unsecured debt, with an average recovery rate of 80% vs 40%. A tremendous amount of these leveraged loans will mature over the next four years. These loans at final maturity will not be possible to extend. Banks will not be able to keep many of these companies alive by continuing a policy of "extend and pretend". Many non investment grade companies have both leveraged loans and high yield bonds outstanding. The fulcrum security will continue to be the leveraged loan. Distressed debt investors should always invest as high as possible in the capital structure of a targeted company. Distressed debt investors, not banks comprise more than two thirds of the leveraged loan market.

Distressed Debt Market Outlook-2010 

The Federal Reserve will wait to raise interest rates. The United States, deep in debt, will want inflation and a weak dollar. This policy will clash with the massive amount of money the United States needs to raise in the coming years. The increase in the supply of Treasuries will drive prices down and rates up. For the remainder of 2010 we expect at least one new investment opportunity per quarter. A diversified distressed debt portfolio should provide investors that due their homework returns of 12-15 %.

 

Stephen P. Vlahos