Distressed debt isn’t born that way

What can go wrong?

Don’t worry about a thing….

Fuhgeddaboudit….

This article prompted me to write……

https://www.bloomberg.com/news/articles/2022-12-28/credit-market-cracks-widen-as-distressed-debt-nears-650-billion?sref=qLOW1ygh

On top of corporate borrowing and lending amongst public companies, many folks embraced lending their money to ‘private lending’ causes and products.

Maybe they thought if using the word ‘private’ in the descriptor, then it may have an air of exclusivity, perhaps like being with a Private Bank. Regarding the latter, ask how some of those Swiss types are performing lately.

I noticed a large amount of interest and participation (particularly in Australia) in more creative and opaque forms of lending, where impatient and bored capital was seeking a better return than, the then prevailing 1% cash rates.

Just like other times (perhaps when they were called CLO’s or Second Mortgages), I bet that we don’t know much about where the loans are, what they are secured against, who they have lent to who and who owns and has claim over them.

But if that is the case, all of that falls into the category that investors simply didn’t do any ‘work’ or research.

By the way, do distressed loans commence life ‘distressed’ or do we call them that, once they start looking a little less stellar than when they were first issued?

Amongst many things, you need to remember regular people don’t get the same terms as those names appearing in the newspapers who are touted as the cornerstone investors or those promoting this common and not so new thing which espouses the prospects of alternative, uncorrelated and less riskier ‘mark-to market’ returns.

p.s. it was torturous thinking up all of those jargonistic adjectives.

December 29, 2022

by Rob Zdravevski

rob@karriasset.com.au

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