Distressed debt opportunities

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The coronavirus crisis has resulted in an unprecedented number of defaults and presents an opportunity of a life time for distressed debt investors. Where are the opportunities and how should investors allocate capital both domestically and internationally?[vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Victor%20Khosla%22%2C%22job_role%22%3A%22Founder%2C%20SVP%20Global%20(United%20States)%22%2C%22content%22%3A%22Victor%20Khosla%20established%20SVPGlobal%20in%202001%20and%20has%20built%20it%20into%20one%20of%20the%20major%20firms%20in%20distressed%20debt%20and%20private%20equity%20investments%20with%20%248.4%20billion%20in%20assets%20under%20management.%5CnKhosla%20has%2029%20years%20in%20the%20industry.%20He%20got%20his%20start%20at%20Citibank%20(1989-1993)%20and%20subsequently%20built%20and%20managed%20the%20distressed%20proprietary%20trading%20business%20at%20Merrill%20Lynch%20(1993-1998).%20At%20the%20time%20of%20his%20departure%20from%20Merrill%20Lynch%2C%20Khosla%20had%20investment%20authority%20for%20%242%20billion%20in%20corporate%20and%20real%20estate%20investments%20and%20headed%20a%20team%20of%2040%20analysts%20and%20traders%20based%20in%20New%20York%2C%20Tokyo%2C%20London%20and%20Hong%20Kong.%20After%20leaving%20Merrill%20Lynch%2C%20he%20had%20leadership%20roles%20at%20two%20well-known%20funds%3B%20he%20was%20president%20of%20Cerberus%20Capital%20(1998-1999)%20and%20ran%20MooreSVP%20(1999-2002)%2C%20a%20JV%20with%20Moore%20Capital%2C%20which%20invested%20in%20distressed%20debt%20in%20Japan.%5CnKhosla%20graduated%20with%20a%20first%20class%20Bachelors%20of%20Commerce%20(Honors)%20degree%20from%20Delhi%20University%2C%20a%20MA%20in%20Economics%20from%20Vanderbilt%20University%2C%20as%20well%20as%20a%20MBA%20from%20the%20University%20of%20Chicago.%20He%20is%20a%20member%20of%20the%20management%20council%20at%20the%20University%20of%20Chicago%20Booth%20School%20of%20Business.%5Cn%22%2C%22image%22%3A%2231926%22%2C%22linkedin%22%3A%22%22%7D%5D” title=”Speaker” el_class=””][vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Amanda%20White%22%2C%22job_role%22%3A%22Director%20of%20institutional%20content%2C%20Conexus%20Financial%20(Australia)%22%2C%22content%22%3A%22Amanda%20White%20is%20responsible%20for%20the%20content%20across%20all%20Conexus%20Financial%E2%80%99s%20institutional%20media%20and%20events.%20In%20addition%20to%20being%20the%20editor%20of%20Top1000funds.com%2C%20she%20is%20responsible%20for%20directing%20the%20global%20bi-annual%20Fiduciary%20Investors%20Symposium%20which%20challenges%20global%20investors%20on%20investment%20best%20practice%20and%20aims%20to%20place%20the%20responsibilities%20of%20investors%20in%20wider%20societal%2C%20and%20political%20contexts.%20She%20holds%20a%20Bachelor%20of%20Economics%20and%20a%20Masters%20of%20Art%20in%20Journalism%20and%20has%20been%20an%20investment%20journalist%20for%20more%20than%2025%20years.%20She%20is%20currently%20a%20fellow%20in%20the%20Finance%20Leaders%20Fellowship%20at%20the%20Aspen%20Institute.%20The%20two-year%20program%20seeks%20to%20develop%20the%20next%20generation%20of%20responsible%2C%20community-spirited%20leaders%20in%20the%20global%20finance%20industry.%22%2C%22image%22%3A%2231864%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Famanda-white-101a7515%2F%22%7D%5D” title=”Moderator” el_class=””][vc_empty_space height=”10px”]

Key takeaways

• The high yield and leveraged loan market size has doubled since the GFC.
• Today prices will not fall as low as they did in the GFC. This opportunity set is not as deep as 2008, it is a 3 to 6-month window.
• We believe the European trough is lower and the recovery is longer.
• It is important to decide what not to do:
  • In certain regions such as France or Italy, the laws are not conducive to the restructuring process
  • In emerging markets it can be extremely difficult to seize the steering wheel and navigate the restructuring journey
• There is a lot of low hanging fruit in restructuring from an operational perspective.
• In the last 8 years there has not been huge opportunity or activity in the distressed space, but in the last 4 months the market has exploded.
• In 2008 the rising tide lifted all boats. Today, you must be smarter, more focused and more skilled to invest successfully.
• The distressed space offers a very comfortable discount cushion, which alleviates risk if the recovery is slower than hoped.

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Poll results

Are you increasing your allocation to distressed debt opportunities as a result of COVID-19?[vc_line_chart x_values=”” values=”%5B%7B%22title%22%3A%22Yes%20(43%25)%22%2C%22y_values%22%3A%2243%22%2C%22color%22%3A%22blue%22%7D%2C%7B%22title%22%3A%22No%20(43%25)%22%2C%22y_values%22%3A%2243%22%2C%22color%22%3A%22pink%22%7D%2C%7B%22title%22%3A%22Unsure%20(14%25)%22%2C%22y_values%22%3A%2214%22%2C%22color%22%3A%22sandy-brown%22%2C%22custom_color%22%3A%22%230088cc%22%7D%5D”]