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Capital Markets

Restructuring: Aladdin opens DIP fund

Aladdin Capital Holdings has launched a fund that will invest exclusively in debtor-in-possession facilities.

"This new offering will be a DIP fund and the first of its kind. The DIP fund will participate, structure and lend directly into both large-cap and mid-cap facilities," says Neal Neilinger, vice-chairman and chief investment officer at Aladdin.

DIP financing is an essential tool in restructurings. However, the extent of the credit crisis has reduced the number of active players in this specialist sector.

There can be little doubt of the potential size of the market. The global corporate default rate is likely to rise above 12% by the end of this year, according to Moody’s. It says the rate of defaults is rising rapidly – 104 Moody’s-rated issuers defaulted in 2008 of which 22 were recorded in December. Only 18 firms defaulted in 2007.

In the light of this rapidly rising default rate, Aladdin expects DIP financing to offer opportunities for endowments and pension funds that want to access this sector.

DIP ranks senior to existing debt during a Chapter 11 process but a lack of liquidity in this sector could lead to an increase in corporate liquidations. Historically, liquidations have been quite rare in defaults but this could change – due also to the complexity of modern-day capital structures.

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