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German Distressed Corporate Loan Conference Frankfurt, Germany European Distressed Debt Market Outlo

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Title: German Distressed Corporate Loan Conference Frankfurt, Germany European Distressed Debt Market Outlo


1
German Distressed Corporate Loan
ConferenceFrankfurt, GermanyEuropean
Distressed Debt Market Outlook 2005Summary of
FindingsPeter Baldwin, PartnerCadwalader,
Wickersham Taft LLP 5 October 2005
2
Presentation Summary
  • Survey Methodology
  • Key Trends
  • Increased Activity Levels in Germany
  • Sector Opportunity
  • Restructuring Environment
  • Key Investor Concerns

3
Survey Methodology
  • The survey was conducted by Debtwire,
    commissioned by Cadwalader, Wickersham Taft LLP
    and Houlihan Lokey Howard Zukin (Europe)
    Limited
  • Debtwire interviewed 110 institutions, including
    fund managers, prop trading desks par accounts
  • 70 of respondents in Europe and the remainder in
    the US
  • Of total respondents 66 were hedge funds, 11
    par accounts and the remainder prop desks
  • Broad consensus between groups on either side of
    the Atlantic, but a key difference between the
    two groups was attitude to risk
  • A key focus for US institutions was the impact of
    the differing insolvency regimes on European
    restructurings

4
Key Trends German Opportunities
  • Macroeconomic conditions and the impending Basel
    II regulation framework would precipitate a
    number of opportunities in the German market.
  • The traditionally bilateral lending relationship
    and the high proportion of non-performing loans
    held by German banks would lead to a rapid
    development in the secondary market for such
    loans
  • In order to avoid a capital squeeze that would
    restrict the writing of new business, German
    banks would have to sell off their non-performing
    loans, by way of both individual and portfolio
    sales
  • Such sales would lead to an increased interest in
    the German market by investors that is expected
    to continue as a number of institutions move to
    develop a NPL specialisation

5
Key Trends Sector Opportunities
  • Participants saw increasing opportunity in the
    airline and retail sectors
  • Retail The woes of the retail sector as a whole
    have helped investors push for increased pricing,
    even on the credits they do support
  • Increasing weakness in the retail sector
    Allders, Courts, Furnitureland and Allsports have
    entered administration this year
  • Airlines In the US the recent Chapter 11 filings
    of Delta and Northwest Airlines are evidence of
    challenges in the airline sector
  • Such situations only exacerbated by increasing
    competition in the low cost market coupled with
    high fuel costs and continued uncertainty
    regarding oil production leading to continued
    pressure on pricing

6
Key Trends Restructuring Environment
  • A prevailing trend anticipated in 2005 was a
    shift from investment in bonds to an investment
    in syndicated bank debt, largely as a result of
    the relative increase between 2002-2004 in loan
    financing compared to high yield issuance
  • As a majority of this syndicated debt trades into
    the hands of hedge funds and CDO managers, this
    will have a significant impact on the negotiating
    dynamic in any restructuring
  • Hedge funds are naturally more flexible and
    opportunistic in their restructuring negotiations
    than banks
  • This will bring an interesting dynamic into play,
    particularly as between the hedge funds holding
    bank debt and bondholders and between those two
    classes and the senior bank debt holders
  • Also anticipated is that private equity
    investment will play an increasing part in the
    exit strategy of distressed investors
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