NEW YORK, Jan. 26 /PRNewswire/ -- Despite today's economy and residuals from the recession, distressed-debt investors continue to see select opportunities in 2010, according to the fifth annual North American Distressed Debt Market Outlook Survey from Debtwire, Bingham McCutchen, FTI Consulting, Inc., and Macquarie Capital (USA) Inc., released today.
One-quarter of respondents plan to increase their allocation of investment dollars to distressed debt in 2010, representing a decrease from the two-thirds of poll participants expecting to increase their allocation of investment dollars to this market in the 2009 survey.
Increased Risk Appetite
At the same time, respondents to the 2010 survey reveal an increased appetite for risk. 64% of respondents picked second lien debt as the most attractive investment instrument in 2010, marking the first time in the five-year history of the Debtwire Outlook that first lien secured bank debt did not rank as the top category.
Ed Albert, Managing Director of Macquarie Capital (USA) Inc., explains: "Our experience has been that distressed investors may be forced to move down the capital structure in search of returns. This is a change from over the past 18 months, where first lien debt was the preference during the recent period of market volatility."
Another notable shift appears in respondents' sector preference. 41% of surveyed investors anticipate distressed opportunities in the Real Estate sector to be particularly attractive in 2010, a notable shift from the mere 19% of respondents who allocated investments to this market last year.
"Commercial real estate and much of the debt attached to it have fallen in value to the point of being tempting for value players and distressed investors, but in most markets the CRE down cycle still has a way to go," says Ron Greenspan, Senior Managing Director, FTI Consulting Inc.
Findings also suggest upcoming debt maturities will play an important role in producing distressed investment opportunities in 2010: "Over a quarter of respondents view impending maturity dates as the primary catalysts for amendments," says Bingham partner Michael Reilly, co-chair of the firm's global Financial Restructuring Group.. "Some of the 'covenant-lite deals' made during the middle part of the last decade are now approaching maturity.".
- Only one-third of respondents expect to increase their DIP lending activity in 2010, compared to more than half expecting to increase their DIP lending activity in 2009
- 54% of respondents expect to see an increase in distressed M&A activity throughout the year
- 83% of respondents do not expect the US Government's role in high-profile restructuring activity in 2009 to have a lasting impact on restructuring litigation.
The report, available for download here, provides an in-depth review of emerging trends in the distressed debt markets, based on the predictions of 100 experienced distressed debt investors throughout North America.