Could Distressed Debt Provide Market Opportunities Amid COVID-19?

• Published date: 25 June 2020
• Subject Matter: Finance and Banking, Insolvency/Bankruptcy/Re-structuring, Debt Capital Markets, Financial Services, Insolvency/Bankruptcy
• Law Firm: Ocorian
• Author: Mr James Maitland and Sonal Patel

There are always going to be successes and failures as a result of the pandemic, and major funds players are watching the market closely.

Much has been made of the business opportunities that might arise as a result of the impact of the COVID-19 pandemic around the globe. In times of crisis there will always be corporate successes and failures, and many expert commentators are considering distressed debt as an area of interest.

Indeed, distressed debt was a point of focus in a recent webinar hosted by Ocorian, with Todd Buchholz, renowned economist and former White House Director of Economic Policy, highlighting how hedge funds are looking at it as an opportunity.

For Buchholz, a key question is which companies will come out of the pandemic in one piece. He noted how the retail space has been hit particularly hard, pointing to how 40% of US retailers in shopping malls didn't pay rent in May. He also drew attention to numerous high-profile bankruptcies, such as J. Crew and Neiman Marcus.

"It's a fascinating time for distressed debt. I do believe there will be survivors. I do believe that the Fed is backstopping interest rates," he says. "We've seen high-yield outperform most recently and, if you believe the economy is going to survive and there is going to be a reopening, then I think the opportunities there are rather vast and promising."

Buchholz believes that demand for expertise in this area from the likes of Blackrock, Citadel, Blackstone and others is a clear indication of the potential that lies in distressed debt.

James Maitland, Ocorian's Regional Head of Americas and Global Capital Markets Service Line Leader, is very much in agreement about the opportunities and points out that there is a lot happening on the ground. "Funds, especially the distressed players, are eager to get going. We are seeing more and more shifting into that space. I think they see opportunities that are almost too good to miss."

Among the sectors that Maitland identifies as being particularly busy with the acquisition of distressed assets are airspace, shipping and related...