Nov 2, 2007
LONDON (Reuters) - Hedge fund Centaurus Capital sees attractive opportunities in the $400 billion leveraged loan backlog held by banks after the credit crisis, but said a lack of liquidity has so far made buying at cheap prices impossible.
"We'd love to take advantage but it has not been possible so far," Bernard Oppetit, chairman and chief investment officer of the activist hedge fund said at IRC Conferences' Hedge Royale event in London on Thursday. "It looks a bit of a stalemate."
This summer's credit crisis, triggrered by a surge in U.S. subprime mortgage defaults, has hit hard the previously buoyant market for leveraged loans, whereby private equity firms raise debt to finance takeovers. Banks, which sell on the debt to institutional investors such as hedge funds, banks or managers of collateralized loan obligations, currently face a huge backlog of deals as syndication has frozen up.
Many have taken writedowns reflecting the commitments they made before the summer's credit crisis.
Last month, Merrill Lynch & Co took $7.9 billion in writedowns in the third quarter from leveraged loans from corporate takeovers and bad bets on mortgage securities. Goldman Sachs recorded $1.71 billion in losses on leveraged loans earmarked for buyouts, reflecting their reduced current market value.
However, Oppetit said that while this might be expected to create opportunities for investors such as hedge funds, liquidity is extremely tight as banks remain unwilling to sell on the loans at a loss.
"Leveraged loans have reached $400 billion on banks' balance sheets ... because the music stopped very abruptly and suddenly ... It is an interesting situation. Some of the loans will be sold too cheaply and we'd love to be on the buying side of this.
"(But) there's very little paper changing hands and a typical bid-offer spread is 90-95. Nothing is trading. Banks need to take the loss and move on."
Nevertheless, Oppetit said credit markets were throwing up opportunities for his hedge fund, which has been focusing on event-driven opportunities in mergers and acquisitions. "I'm extremely excited by what we're seeing out there. Most of what we've been doing in the last few years has been in M&A and we've done almost nothing in the credit market. Spreads were too tight and it was very hard to do anything.
"That is changing very fast. We're starting to see some very interesting opportunities in capital structure arbitrage, and distressed, which is a very high alpha business when done right."
Alpha means returns attributable to an individual fund manager's skill rather than overall market returns.
Source :http://investing.reuters.co.uk |
