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...