Europe Distressed Debt Funds
Hedge Funds Wait for Major Fire Sale in EuropeHedge funds and private equity firms are waiting on the sidelines of the European debt mess, salivating at the prospect of a huge fire sale for banks in the region. Despite amassing $74 billion to invest in distressed debt, these funds are encountering a hitch in the plan: a reluctance to sell by banks. As the ECB cuts interest rates and injects cash into the financial system, banks are under less pressure to sell at below-value prices and thus have given private equity and hedge funds less targets than expected, at least for now.
Hedge funds and private-equity firms have amassed an unprecedented 60 billion euros ($74 billion) to invest in distressed debt in anticipation that Europe’s sovereign-debt crisis will push banks into the biggest fire sale in history. The problem is few are selling.
Apollo Global Management LLC (APO), Oaktree Capital Group LLC (OAK), Avenue Capital Group LLC and Davidson Kempner Capital Management LLC are among U.S. firms that have flocked to Europe, setting up offices and raising funds to benefit from the most severe period of distress in the region. The money raised for distressed-debt funds gives the firms about 100 billion euros to spend on deals including leverage, according to PricewaterhouseCoopers LLP.
European Central Bank PresidentMario Draghi has cut interest rates three times to a record low and flooded the financial system with cash since taking over at the helm of the central bank in November, taking pressure off banks to sell their assets at depressed prices. The European Banking Authority said last month that banks have been able to shore up their balance sheets over the past year without “fire sales.”
“There are quite a lot of opportunities, but the problem is whether banks are selling,” Christopher Hart, president elect of TMA UK, a trade organization representing turnaround specialists, said during a London industry gathering in June. “As the adage goes, ‘a rolling loan gathers no loss.’” Source