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Vultures fly high as distress intensifies

Vulture funds – or distressed-debt investors, as they’d rather be called these days – have never had it so good. The supply of distressed-investment opportunities is at an all-time high. It’s going to stay that way for a while yet – regardless of whether the global economy booms, slumps or just bumps along.


VIRTUALLY EVERY WEEK brings news of another stunning corporate collapse. Debt default rates - at more than 12% - are at historical highs and credit downgrades are outrunning upgrades by six to one. Whole industry sectors are in deep trouble. And the volumes of bank loans and securities caught up in bankruptcy, restructuring or distress keep on rising.

Enron, Global Crossing, Kmart, NTL, Energis, Marconi: the corporate casualty list is long, the sums involved enormous and the causes diverse.

But in all these cases, and hundreds more besides, there is one link: the vulture funds are there, and in force. Whether these companies live to fight another day - and in what shape - will largely be determined by these super-activist fund managers.

For years a relatively small band of specialist investors has made fantastic returns - and occasionally fantastic losses - by buying up the bank loans and securities of companies in financial difficulties in what is effectively a gamble on recovery.

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