Whatever economic crisis our beloved policymakers cook up, you can be sure there will be some business at the end for distressed debt buyers.

Loaded up with investment funds, these firms have now moved beyond buying marketable securities of a distressed entity and have taken to lending them money (with both high returns and large amounts of collateral), and then, if the thing does go belly up, moving in to do the restructuring and make their sale.

Nice work if you can get it and, according to a new market survey by data provider Debtwire, law firm Cadwalader, Wickersham & Taft, and investment bank Houlihan Lokey Howard & Zukin, 44% of respondents expect 1%-29% of their capital to be accounted for by direct investments.

“Hedge funds are able to capitalise on superior structuring skills and understanding of distress to offer highly flexible financing packages to companies with balance sheet problems in exchange for premium pricing,” says Duncan Priston of Houlihan Lokey. Whereas a bank might dither, then lend new money and finally take a hit, a hedge fund can extract value from the lending and do the restructuring at record speed.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter