Troubled Assets in Europe Spark Interests in US Hedge Funds
Leaving investors in the United States with fewer opportunities to acquire distressed debt and sell it for a profit in a restructuring, hedge funds and also private equity investors are bidding up prices of some troubled assets in Europe.
For years after the financial crisis, European banks resisted selling their corporate loans for fear of having to record heavy losses. But recently, some European lenders have reversed their stance as demand for these assets has jumped. One reason for the shift: Defaults and bankruptcy filings have declined in the U.S., leaving investors with fewer opportunities to buy distressed debt and sell it for a profit in a restructuring.
"The prices have risen to the point where some banks are looking to sell because they're seeing transaction prices that imply" a much smaller loss for certain assets, said Ari Lefkovits, a managing director at Lazard Ltd., who moved to London in August 2012 in part because of an anticipated uptick in European restructuring activity.
That is a boon for the band of distressed-debt investors who set up camp in Europe shortly after the financial crisis hoping to cash in on bargain-basement prices only to find themselves with little to do. The problem is that the recovery in loan prices that is luring the banks into sales will cut into investors' profits and margins.Source: Wall Street Journal