Irrational World of Distressed Debt Leaves $15 Billion Idle

It was a flashpoint in the world of distressed investing: Sanjeev Gupta’s infamous metals empire was falling apart as Greensill Capital imploded, Bloomberg reported. As turnaround specialists sought to grab debt of one his key assets on the cheap, a single U.S. private-equity firm swooped in to buy up the lion’s share — at full price. While the supply-chain saga has sparked a lobbying scandal in the U.K. political establishment, for troubled credit creditors it shows the everyday challenges of deploying the $15 billion lying idle in distressed funds. Thanks to a central bank-fueled financing bonanza, even borrowers on their knees have leverage over the big-guns of high finance. With developed economies recovering, deals are rare and hard-won. Faced with vanishing ways to profit from distress, once-adventurous traders are joining banks in the loan market or competing with insurers buying debt of publicly-rated companies. Industry practitioners are taking a glass half-full view on all this, but there’s no question the distressed debt community is downsizing lofty ambitions forged in the pandemic downturn. “The market is irrational,” said Galia Velimukhametova, who manages Pictet Asset Management’s $400 million Distressed & Special Situations Fund. “The opportunities’ set has shrunk — but you can still cherry pick and position for when the euphoria will settle.” Read more.