next distressed-debt targets in sight

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Next distressed-debt targets in sight

PUBLISHED: 21 Jun 2011

Paulina Duran

Players in the distressed-debt market are increasing their attention on publicly listed

companies for their next deals, according to market participants surveyed by the Financial

ReviewDealBook.Toll road builder Brisconnections, paper merchant PaperlinX, Boom Logistics, agribusinessoperator Elders, timber company Gunns, and crop protection group Nufarm are among thepublic companies that debt traders are watching as they approach refinancing deadlines amiddifficult market conditions.

Those are just listed examples, a market participant said. There are a few names in theprivately owned space too. But it is hard to find good opportunities.

Reliance Rail, the $2.4 billion public-private partnership building NSWs Waratah train sets, and

West Australian coal-fired electricity generator Bluewaters Power Station, now in receivership,are also high on the list of targets.

Until recently debt traders have focused on unlisted private equity-owned companies such asColorado Group, pathology provider I-Med, vacuum cleaner group Godfreys, New ZealandsYellow Pages and Metro Glass that have struggled under the weight of excessive debt loads.

But they have also been emboldened by trades in listed groups such as Centro Properties andAlinta Energy, which have led to profitable deals for debt holders.

The new targets have emerged amidst financial market fears worldwide about a second round

of the global financial crisis, and a local market that is divided on whether Australias multi-speed economy can survive it.

The distressed investment universe in Australia is part of the alternative investments space inwhich a flurry of traders, credit funds, the special-situation desks of investment banks, hedgefunds and turnaround-focused private equity firms play.

The local market has attracted deep-pocketed global investors, many of which have fundsunder management of over $US10 billion ($9.4 billion), seeking to put capital to work.

There is a certain return that players would target, and depending on their focus they would

look at secondary debt opportunities, or primary capital such as mezzanine debt or convertiblesecurities that can go into a struggling company, a special-situations investor said.

Companies under the spotlight are typically struggling to pay debts that were acquired duringthe last period of global prosperity, or simply have unsustainable capital structures and may beunder pressure from banks to contribute more equity or call in alternative funding sources.

The obvious one is Brisconnections, that is just a matter of time. It will happen [distresseddebts will trade], a source said. But others would get refinanced through senior banks,

The local distressed-debt market has flourished over the last two years, as credit dried up in the

aftermath of the global financial crisis. The strategies pursued by those participating in thisalternative market vary in style and cover anything from investing in high-yielding securities toactive trading in an illiquid market with poor information flow to buying the problematic debts ofcompanies seeking ultimate ownership through so-called loan-to-own strategies.


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These investors also comb the market for companies in need of fresh capital injections.Depending on the level of distress under which these companies operate, they will be offeredexpensive capital lifelines by these same investors. Alternatively, companies lenders might findthemselves fielding offers from investment banks and hedge funds who seek to snap their loansat steep discounts to gain control of a given restructuring process.

But not all the names spotted by Dealbooks survey will necessarily be in the distressed-debtmarket diaspora.

Crop protection group Nufarm, whose shares closed at a six-month low yesterday, is anexample of a company that could refinance its debts with banks.

There isnt enough stress in that company for guys like us to find a good reason to investexpensive money with them. So senior bankers will probably refinance it, another investor said.

Rabobank is mandated to complete a long-term $300 million asset-backed securitisationfacility as part of a broader debt package. Nufarms 12-month $900 million loan with Rabo,NAB, HSBC and ANZ expires on December 15.

It will be expensive senior debt. Terms would be, lets say, 500 [basis points] over benchmarkrates and not 200-over paper, he said. But 500-over paper doesnt get me excited,

However, should conditions in global markets deteriorate and credit dry up, more companieswill be on these investors radars.

Then some of those names will not be able to refinance with expensive senior debt and willmove to very expensive distressed debt.

Reliance Rail, the struggling $2.4 billion public-private partnership created to build, maintainand rent passenger trains for government-owned RailCorp, has been under close scrutiny by

this market.

The illiquid bonds financing the PPP will be actively traded as the September deadline fordirectors to sign financial accounts approaches and traders bet on whether the government willbail out bondholders and banks involved in its collapsing financing package.

Comments? Call Paulina Duran on (02) 9282 3106 or email:[email protected]

DealBook conference

DealBook is hosting a conference on June 22 in Sydney, where panels will examine topics

including the future of private equity, the catalysts for improving investor sentiment in equitycapital markets and the future drivers of mergers and acquisitions. For the program, and to

register, click here .

The Australian Financial Review

Related News

Companies Nufarm Ltd, Nufarm Finance (Nz), Alinta Ltd, Centro Properties, Elders Ltd, BoomLogistics, Gunns Ltd, Brisconnection Trust, Paperlinx Ltd

Topics Financial Markets, Financial Services Industry/Private Equity, Financial ServicesIndustry/Banking & Finance, Construction & Engineering, CompanyNews/Bankruptcies


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Companies Nufarm Ltd , Nufarm Finance (Nz) , Alinta Ltd , Centro Properties , Elders Ltd ,Boom Logistics , Gunns Ltd , Brisconnection Trust , Paperlinx Ltd

Topics Financial Markets, Financial Services Industry/Private Equity, Financial ServicesIndustry/Banking & Finance, Construction & Engineering, CompanyNews/Bankruptcies

next distressed-debt targets in sight

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