Still waiting for the market to crack, managers turn to
activism and private equity
Just a glimpse of the ongoing battle over
bankrupt autoparts supplier Delphi and its major stakeholders -
Appaloosa Management, Cerberus Capital Management and Highland
Capital Management - points up one fact very clearly: The
playing field for distressed debt has shifted dramatically as
conventional workout opportunities dried up. To rake in big
returns, distressed funds have had to turn to more creative,
aggressive strategies - be it activism, private equity, direct
lending, covenant arbitrage or any combination thereof.
Today's historically low corporate default rate would have
traditionally correlated to an environment lacking fodder for
fat returns. But even without expectation of much higher
default rates in the near term, most distressed players
actually expect this year to be nearly as strong as 2006, even
if they are filled with healthier trepidation.
That optimism is fueled in part because insiders...