Restructuring to an Activist Fund

I understand that Restructuring work on the Debtor side gives you a better shot at breaking into an activist hedge fund than work on the creditor side. So what is the type of work that someone on the debtor side should try to get involved with that will give them exposure to the client's balance sheet?

How easy/hard is it for someone at a Blackstone or Lazard to jump to an Activist HF?

And a side question: What are the prospects for restructuring business over the next few years.

Thanks for your help.

 

To your side question:

Most companies are not using CH11s to restructure operations given the 2005 changes in the bankruptcy code, primarily related ot the time the debtor has within which to file a POR. The reduced time to file promulgated by the law has forced companies using CH11 mostly for M&A (363 sales), where financial buyers (pe/hf) are buying assets at distressed prices free and clear of liens and encumbrances. There are always of course the traditional capital restructurings on the balance sheet, but that is far removed from operational restructurings. Then you have CH11 liquidations that will continue if you can't find a buyer of the assets (aka Borders).

I don't foresee a lot of operational restructurings to take place in the future. If you look at the leveraged loan/HY market, many companies are using liquidity in this sector to refinance maturing debt. However, this can only continue to so long and with rising yield curves in the short run, more debt will need to be restructured over the next 2-3 years. Thus, my guess is we will see far more capital restructurings/M&As insofar as there are foreclosures in the future rather than true operational restructurings in the short run.

My .02s.

 
Best Response

I work for a cross-strategy debt fund (mezz, distressed, mid-market, and etc) and I agree with Socola. A lot of the defaults and "easy money" distressed opportunities have already washed through the cycle and the default rate is at historical lows.

That said, there are certainly restructurings happening all the time, especially in the mid-market. The NYSSA had a distressed panel recently and one speaker said that mid-market debt is a "time-bomb" because so many commercial banks (who are often the main capital providers to lower-mid-market companies, along with specialty finance cos like a CIT or various BDCs) have basically just kicked the can down the road. They call it a credit CYCLE for a reason. http://www.distressed-debt-investing.com/2011/07/notes-from-nyssas-dist…

As an aside, I think a lot of people over-estimate the number of pure "activist" funds there are out there. For example, 3rd Point and Pershing Square have had high-profile activist moments (Dan Loeb's snarky letters, Pershing Square's Target investment), but are both value-funds (3rd Point is fairly event-driven as well). A lot of what is referred to as activist investing really just ends up being green-mail of small cap companies or swashbuckling like Icahn.

In my eyes a lot of the more productive activist investing that occurs happens in the debt space, either via distressed situations where stakeholders all come to the table and work to help the company survive, or in the mid-market space where lenders play a huge part in decision making/strategy. When you're one of 6 investors in a mid-market term loan, you can definitely get a seat at the table and work closely with management. Coming from a top restructuring group you can definitely get an interview at those types of funds.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

Thanks alot for the comment. The information is great.

Have you posted more information about your fund on other threads? It sounds very appealing to me.

Thanks again for the post.

 

I've made a few posts about it, and a lot more posts about various credit investing things (mezzanine, mid-market, non-bank lenders, and BDCs) here and there. A lot of those end up in the PE forum because some of those strategies are somewhere between fundamental hedge fund and private equity investing. A lot of debt managers (and many of the largest) are affiliated with PE sponsors.

The spectrum of things we invest in isn't really unique-lots of credit shops have capacity across the capital structure and across the mid-market and large-cap world. What makes the place I work somewhat unique is that we're small so I get to work on all these things, as opposed to at say a Sankaty where as an analyst you'd be more focused, be it by product type or industry or what have you.

I try not to say enough to make it obvious who I am/where I work (not that I work anywhere "famous" or am notable in any way).

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

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