Redwood Capital Management is planning to raise approximately $1bn for a new fund focused on long-term, illiquid credit investments, as restructuring processes across stressed debt markets continue to extend in duration, according to a report by Bloomberg.
The report cites unnamed people familiar with the mater and investor materials reviews by Bloomberg as revealing that the strategy is expected to deploy capital on a continuous basis rather than concentrating investment during periods of market dislocation.
The move comes as distressed borrowers increasingly rely on liability-management exercises and debt exchanges to defer formal restructuring events. These tactics are often used to buy time before deeper balance-sheet resolutions are required, lengthening the overall investment cycle in stressed credit. At the same time, competition for opportunities in the space has intensified, with private credit managers offering direct lending solutions that can generate locked-in, multi-year returns.
Redwood reportedly declined to comment when contacted.
Recent performance at the firm has been driven in part by equity positions obtained through restructuring outcomes, according to the materials and sources familiar with the matter. These investments typically originate from debt holdings that convert into equity during or after workout processes.
Notable contributors include exposure to Pennsylvania Real Estate Investment Trust, which underwent Chapter 11 proceedings in 2024 involving Redwood participation. Other positions highlighted include Brazil’s Intercement, Argentine utility Desa, and US chemicals group TPC Group.
The firm has also benefited from holdings in EchoStar, following a significant spectrum asset sale to SpaceX, as well as a preferred equity stake in fitness franchisor Xponential Fitness.
A continuously invested, longer-duration structure would provide Redwood with greater flexibility to hold assets through restructuring cycles and capture potential equity upside as credit positions evolve.
The strategy reflects broader market dynamics in which elevated rates have increased stress on weaker borrowers, while abundant liquidity and flexible financing options have enabled many companies to delay restructuring through exchange offers and refinancing transactions.
Redwood, which is led by Ruben Kliksberg and Sean Sauler and manages over $10bn in assets, has previously reported net internal rates of return of 17.5% for its 2021 dislocation drawdown fund and 24.8% for its 2017 vintage, according to investor materials.
