The rise of controversial debt deals that pit creditors of struggling companies against other lenders is being driven in part by a fear of getting left on the sidelines as rivals profit, according to Fidelity Investment’s Nathan Van Duzer.
(Bloomberg) — The rise of controversial debt deals that pit creditors of struggling companies against other lenders is being driven in part by a fear of getting left on the sidelines as rivals profit, according to Fidelity Investment’s Nathan Van Duzer.
“No one wants to find out a deal has been done around them — particularly if it’s an aggressive up-tier exchange,” Van Duzer, the firm’s managing director of special situations, said on the April 6 episode of Bloomberg Intelligence’s FICC Focus State of Distressed Debt podcast.
“FOMO is alive and well in the creditor community.”
Stream the episode here: State of Distressed Debt
Instances in which lenders have moved intellectual property out of reach of existing debt holders, or pushed other creditors down in the repayment line, have ballooned in recent years as struggling companies have sought creative ways to raise cash and stave off bankruptcy.
As a result, bondholders are starting to form groups earlier in distressed situations, according to Van Duzer.
“There’s a growing trend of getting in front of these names a little earlier,” he said.
There have also been signs of a potential detente among some firms.
Some of Carvana Co.’s biggest bondholders, including Apollo Global Management Inc. and Pacific Investment Management Co. late last year signed a pact to avoid the kind of nasty creditor fights that have complicated other debt restructurings in recent years.
For firms like Fidelity, trying to exploit weak creditor protections for a “quick buck” isn’t an option, according to Van Duzer.
“You don’t want to be left behind,” he said.
“But on the other hand, we’re in this market for the long-haul. We’re not looking to crush it for a couple of years and then roll up our flag and go do something else.”
–With assistance from Eliza Ronalds-Hannon.
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