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Leveraged finance: Funds go hungry as distressed trough fails to fill

Many investors had been positioning themselves for an inevitable downturn in the leveraged finance market long before this summer’s dislocation. But, ironically, the underwriting abuses of the past few years mean that they could still face a long wait before any meaningful opportunities arise. Louise Bowman reports.

Wait and see

"Even when the market was functioning we could see that these were very poor quality assets – a deal that is a pig at par is still a pig at 96"

NOBODY WAS GOING to win any prizes for guessing that the cheap money fuelling the leveraged buyout boom of the past few years would not last for ever. Even as the stream of ever more audacious deals continued to hit the market in the first half of this year (and long before) many firms – indeed often the same firms that were sponsoring these buyouts – were working on how best to exploit the inevitability that some of these deals would not survive. So the market is now seeing such firms as Kohlberg Kravis Roberts planning to buy up loans at a discount from investment banks that have been unable to sell on the deals they underwrote for the likes of ... err ... KKR. When these firms describe themselves as multi-strategy, they clearly aren’t joking.

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