Pre-Event Activism is Key to Stress Debt Investing in 2008
Mesh Tandon, Simran Capital
There were a lot of reasons to dislike riskier credit in the second half of last year. The subprime mortgage fallout, tightening credit markets, an increasing backlog of postponed new issues in the high yield space and growing concern over the economy were enough to make even the most seasoned distressed investors re-evaluate their portfolio strategies.
Since June, bonds rated triple-C and below have lost over 10% of their value, and steeper declines have been seen for bonds with rating just above default. In November alone, high-yield spreads increased to their highest levels in four years (598 basis points). At the end of that month, bonds that traded at or below 70% of par increased to US$31.9 billion, representing a 258% increase in just one month. This is the highest level of debt trading below 70% in two years.
