Chidem Kurdas
Distressed debt managers have waited for several years for what used to be called “the great wall of maturities” to come due. This is the big pool of debt created mostly in leveraged buyouts during the boom years. Payments were postponed in the aftermath of the financial crisis.
Lenders turned out to be willing to wait. Maturities for 2011 and 2012 were put off for years. But the debt has not gone away and large chunks of it will start coming due in 2013 and in particular from 2015 on.
While some of this debt may be easily refinanced, not all companies will be able to refinance. Some will need to be restructured, whether in or out of the bankruptcy courts. The situation is expected to offer profitable opportunities to distressed and credit managers with the requisite skills.
One of the beneficiaries of investor interest in this area is Paulson Credit Opportunities Fund. Despite its 18% loss last year, the credit fund has loyal customers who expect it to do well, especially as it had a compound annual return of 59% from inception in 2006. Assets in this fund were $6.8 billion as of early this year.
It was not the worst performer among John Paulson’s funds—Paulson Advantage Plus lost 52%, as widely reported.
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