The recent market turmoil has highlighted the fragility of the banking sector and increases the attractiveness of distressed debt.
A distressed debt cyclein which The number of companies with too high a debt load or with refinancing problems is increasingalready it is a fact and is likely to stick around for some time, he told Reuters. founder of Strategic Value Partners (SVP).
victor khoslaalso investment firm chief investment officer centered on the opportunistic credit and the venture capitalsaid that the sharp rise in interest rates fundamentally changed the economic and financial environment.
The role of central banks
“For the first time in 30 years, we see a cycle in which central banks are not our friends and with higher rates for longer… the cycle of difficulties is not just around the corner, it is partly already here,” said the founder of SVP, who manages some u$s 17,000 million in assets.
A common indicator of business difficulties is the discount price at which the bonds are trading. Khosla observed that around 23% of global junk bonds trade below 80 centsnear to 25%-30% observed in previous cycles of difficultiessuch as during the 2020 COVID crisis.
the recent turmoil stemming from the US and European banking sectors hardened the financing conditions and raised the recession risks. And although the main central banks were more cautious, further rate hikes remain likely given the rigidity of inflation.
The allure of distressed debt
“The mindset that we have, as we get closer to this cycle, is that it’s a couple of years down. and a couple of years up. There is no month down and another month up like in COVID”said Khoslareferring to the increased distressed debt opportunities.
He added that the recent market turmoil revealed the fragility of the banking sectoraccelerating the trend of distressed debt.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
