Distress investing: Debt could magnify risks of market dislocations
In considering distressed opportunities, investors will need to discern whether companies are permanently impaired or can be turned around
WITH recession expected in many economies, distressed situations will be an important source of deals for prospective investors. What will matter is whether the targets are permanently impaired or can be turned around.
Two real-life scenarios from the debt bubble of the early aughts and the ensuing credit crunch provide helpful guidance.
Cyclical volatility or dislocation
UK investment firm Candover bought hygienic products producer Ontex for one billion euros (S$1.4 billion), or 8.1 times earnings before interest, taxes, depreciation and amortisation (Ebitda), in 2002. The debt package, comprising senior and mezzanine loans, totalled six times earnings.
Share with us your feedback on BT's products and services
