Debtwire Survey Shows Increased Appetite for Risk
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One research report says forget what the economic indicators are putting out there; investors do see select opportunities in 2010.
The outlook report from Debtwire, Bingham McCutchen, FTI Consulting, Inc., and Macquarie Capital (USA) Inc. says that one-quarter of the investors contacted by the firm plan to increase their allocation of investment dollars in 2010 to distressed debt.
This represents a decline from the two-thirds of poll participants expecting to increase their investment in distressed debt in the same survey for 2009.
Although the number of investors planning to increase has declined, the survey does reveal that there is an increased appetite for risk. According to the firm 64 percent of respondents picked second lien debt as the most attractive investment opportunity in 2010. In the five years of the Debtwire Outlook, this marks the first time that first lien secured bank debt did not rank as the top category.
“Our experience has been that distressed investors may be forced to move down the capital structure in search of returns,” said Ed Albert, managing director of Macquarie Capital. “This is a change from over the past 18 months, where first lien debt was the preference during the recent period of market volatility.”
In another shift from the norm, the Debtwire Outlook showed that 41 percent of the surveyed investors see distressed opportunities in the real estate sector to be attractive in 2010. In 2009 just 19 percent of investors responded with a bullish outlook in the real estate sector.
Additional findings include 54 percent of investors said they expect to see an incline in distressed merger and acquisition activity in 2009. Also one-third of respondents plan to increase their DIP lending activity in 2010, down from half in 2009, and 83 percent do not expect the government role in high profile restructuring in 2009 to have a long-term impact.
The outlook report from Debtwire, Bingham McCutchen, FTI Consulting, Inc., and Macquarie Capital (USA) Inc. says that one-quarter of the investors contacted by the firm plan to increase their allocation of investment dollars in 2010 to distressed debt.
This represents a decline from the two-thirds of poll participants expecting to increase their investment in distressed debt in the same survey for 2009.
Although the number of investors planning to increase has declined, the survey does reveal that there is an increased appetite for risk. According to the firm 64 percent of respondents picked second lien debt as the most attractive investment opportunity in 2010. In the five years of the Debtwire Outlook, this marks the first time that first lien secured bank debt did not rank as the top category.
“Our experience has been that distressed investors may be forced to move down the capital structure in search of returns,” said Ed Albert, managing director of Macquarie Capital. “This is a change from over the past 18 months, where first lien debt was the preference during the recent period of market volatility.”
In another shift from the norm, the Debtwire Outlook showed that 41 percent of the surveyed investors see distressed opportunities in the real estate sector to be attractive in 2010. In 2009 just 19 percent of investors responded with a bullish outlook in the real estate sector.
Additional findings include 54 percent of investors said they expect to see an incline in distressed merger and acquisition activity in 2009. Also one-third of respondents plan to increase their DIP lending activity in 2010, down from half in 2009, and 83 percent do not expect the government role in high profile restructuring in 2009 to have a long-term impact.
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