Sat, Aug 20, 2022
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

New distressed debt fund poised as billions go bad

Thursday, November 19, 2020
Opalesque Industry Update, for New Managers - Distressed debt and special situations specialists Arbitrium Capital Partners formally opened its doors in Sydney today, poised to find turnaround deals among the thousands of Australian companies that may be at risk of default from March 2021 as COVID support packages are removed.

With nearly 20% of the $300m fund size in committed capital, founders Daniel Liptak and Mukhtader Mohammed said deal flow is strong, as banks and other lenders face degrading risk profiles in otherwise solid companies impacted by COVID.

"Our investment universe comprises companies with pre-COVID revenues of $50-750M with over $100 billion in aggregate corporate debt," said debt and restructure specialist Mohammed. "Australia is in a recession for the first time in nearly 30 years. Given the decline in earnings and growing working capital challenges brought on by COVID-19, there is growing uncertainty that non-investment grade loans to Australian mid-market corporates may be at risk of default in the next six months as government fiscal measures expire. Many of these companies have really good fundamentals and make excellent turnaround prospects, so funds like ours, with a mandate to invest in high risk loans, see very strong opportunities."

At present, mid-market corporate Australia is underserviced by specialist credit funds that can provide patient capital with turnaround capabilities. However, interest in corporate debt in Australia is growing, with global funds looking for local deals, said Mohammed. "Australia has a thriving medium enterprise community for many decades, supported by strong regulatory and political frameworks," he said. "Unfortunately, many of these companies simply haven't been able to meet fixed cost demands with the hit taken to topline revenues - but they're still good companies that are likely to recover provided they can find support in a post-stimulus landscape. We tend to see family offices servicing distressed debt at the smaller end of the SME scale, and global funds looking to finance loans of $100m and over, so there is this a giant gap in the middle that we will play a part in addressing."

Liptak, a hedge fund veteran, said alternative debt vehicles would play an important role in helping good Australian companies continue to trade and employ people.

"The true magnitude of 2020 loan default rates are not going to crystallise until next year," he said. "The mid-market companies we're focusing on are the engine room of Australian economy, and many well-managed companies will need patient capital with a risk profile outside traditional lenders tolerances. Our model offers a lot of benefits on both sides of the table."

The Arbitrium team is expanding with two additional partners with decades of experience in distressed debt, funds management and banking, and working with stressed/distressed loans through multiple credit cycles. Further, the Arbitrium Advisory Board comprises of corporate leaders with deep experience in banking, funds management and restructuring.

While COVID is the current catalyst for accelerating stress in corporate loan profiles, the Arbitrium team have worked with stressed and distressed loans throughout multiple business cycles," said Liptak. "There is always demand for a stressed/distressed credit strategy."

The fund invests in illiquid loans and looks to enhance returns through conversion to equity via warrants. It will open a Dublin structure to enable offshore investors to access the strategy.

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Hong Kong manager expects additional tailwind in Asian markets[more]

    B. G., Opalesque Geneva: The Asia equity markets have not been at their best so far this year, with the MSCI Asia index down almost 13% YTD, but many managers remain buoyant about the region, as in

  2. Opalesque Exclusive: Emerging markets persist despite headwinds[more]

    Bailey McCann, Opalesque New York: Emerging markets have been under significant pressure since the start of the year, but there are some nascent trends that suggest that things could be getting better. Emerging markets firm Gramercy Fund Management recently released its third quarter outlook and

  3. Opalesque Exclusive: Castle Hall's DiligenceExchange free Transparency Reports cover 100 managers with $10tn of assets[more]

    Matthias Knab, Opalesque for New Managers: Managers and investors can get free access to DiligenceExchange here: Castle Hall, the Du

  4. Other Voices: ESG exuberance is at all-time highs. But will investors buy?[more]

    As investors increase their focus on mission-based investing, they continue to grapple with ESG and what it means to them. By David Shalom, Director of Capital Introductions at Pershing Innovation. New investment solutions. That's how managers deliver value and attract new inve

  5. Opalesque Exclusive: This European mezzanine debt strategy offers equity-like returns with downside protection[more]

    B. G., Opalesque Geneva for New Managers: Mezzanine financier SIG-i operates in a relatively uncrowded space by proactively manufacturing financing solutions as an alternative to traditional debt and equity instrume