Easy refinancing conditions keep workouts at bay but austerity set to feed distressed pipeline
Return hungry investors are likely to continue parking their cash in high yield bonds allowing over indebted European companies to refinance their debt and new ones to access markets, according to Debtwire Europe’s 2013 Distressed Debt Outlook.
“To judge by the headlines, the intensity of the European crisis has abated since the summer of 2012," says James Roome (pictured), co-leader of Bingham's global financial restructuring practice group. "Although it remains to be seen whether the world is as disconnected as this trend tends to indicate, European leaders certainly seem to have quelled the fears of Eurozone break-up for the moment.”
While European countries return to business as usual, the sovereign crisis will show its ugliest face as the effects of austerity measures impact the real economy and strangle weak businesses.
"Strong appetite for high yield is helping some companies get away with murder and avoid workouts. The development of the European junk bond market will, however, offer restructuring practitioners another tool to execute deals and ultimately create more distressed opportunities in the coming years. Despite a dry pipeline in the first weeks of January, the restructuring market will continue to offer prospects of investments in 2013,” says Mario Oliviero, deputy editor at Debtwire Europe.
In the absence of destabilising macro events in the coming 12 months, the distressed market will feed on those businesses unable to access markets, austerity-hit companies and banks selling debt at discount. Some hedge funds will continue to ride the tail of the sovereign wave which boosted their returns in 2012.
For the report, Debtwire canvassed the opinions of 100 hedge fund managers, long-only investors and prop desk traders as well as 30 private equity investors in Europe on their expectations for the European distressed debt market in 2012 and beyond.
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