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A panel at the Argyle Executive Forum's 2008 Leadership in the Distressed Markets conference in New York City discussed the possibility that high-multiple buyouts, the credit crunch and a soft economy have aligned to create a "perfect storm" for distressed investing.
"The prefect storm is already here," said Loughlin Meghji & Co.'s Patrick Fodale. "There's an incredible amount of leverage out there. There's a much tighter credit market today -- if you can even get a loan -- and a much slower economy, even if we haven't reached the dreaded 'R' word yet." Chilton Investment Co.'s Jim Malley thinks that opportunities for distressed buying will abound this year, saying, "What you're faced with today are companies with exceedingly high leverage that were purchased at exceedingly high multiples." Haynes & Boone LLP's Judith Elkin added that the "banks are moving back into workout mode, but the ones actually holding the debt are the funds, so this time the players are different." The panel agreed that the easy credit terms that banks extended to corporations before the summer's tightening may delay businesses from dealing with financing issues until it's too late. "Without a financial covenant and without the need to refinance, these companies are going to keep going," Malley said. "What you're going to see is companies simply running out of money and toppling into Chapter 11." After letting lending terms get so loose, Malley said banks have moved to the opposite extreme. "The only new issuances you're seeing are safe, safe, safe deals," he commented. "Even deals at 3-times multiples are getting done at a discount." - George White See more stories from Argyle Executive Forum's 2008 Leadership in the Distressed Markets conference Categories Deal Video
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