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Funds to bet billions on European distressed opportunities as liquidity floods markets

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Macro headwinds permitting, 2014 is set to remain awash with liquidity and rampant primary markets will enable companies to refinance and private equity groups to extract more dividends and hit the acquisition trail again.

That is according to the 10th European Distressed Debt Outlook 2014.
In partnership with Rothschild and Bingham McCutchen (London), the study surveyed 100 European hedge fund managers, distressed debt investors and private equity professionals and provides insight into their expectations for the European distressed debt market in 2014 and beyond.
“The threat of an imminent Eurozone break-up that filled the headlines in 2011/2012 seems to have abated, at least for now,” says James Roome, co-leader of Bingham’s global financial restructuring group. “Trust and confidence in the markets seems to be rallying after a relatively stable 2013, although there are wide disparities in growth trajectories amongst European economies.”
In 2013, US and European economies have been boosted by central banks’ commitment to ultra-low interest rates. The combination of return-hungry investors keen to put their money to work and surging inflows into high-yield funds have sent secondary prices rocketing and helped businesses to escape workouts.
“The steady flow of distressed situations, however, will not stop. Ultimately not all issuers can afford to refinance and the swelling number of high yield issuers directly translates into an increased probability of future distressed opportunities,” says Mario Oliviero, deputy editor at Debtwire Europe.
Last year many European banks took advantage of high secondary prices to dispose of junk assets. The surface has only been scratched here, and more needs to come out to clean up balance sheets, particularly in Southern Europe.
“Supply will meet the demand of US hedge funds ready to buy everything that trades and bet billions of dollars on Europe’s macro economic recovery. The show will go on,” Oliviero says.
For the 10th European Distressed Debt Outlook, Debtwire canvassed the opinions of 100 European hedge fund managers, long-only investors and prop desk traders, as well as 30 private equity investors on their expectations for the European distressed debt market in 2013 and beyond. The report comes three days after the release of the ninth North American Distressed Debt Outlook, which showed that short bets gained popularity as a market correction was anticipated.

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