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Picking Up Opportunities in the Debt Explosion
Topic Started: 12 Oct 2016, 10:28 AM (753 Views)
Terry
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The Calvary is coning!

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SYDNEY—Some of the world’s biggest distressed-debt investors are on the hunt for deals in Australia, amid signs more companies—from mining-transport firms to dairy farms—are unable to repay crippling debt loads.

Many debt traders are emboldened by recent signs that commodity prices may have stabilized, increasing their chance of making money from any distressed mining asset bought cheaply now. They are betting on a spate of Australian corporate failures and souring debts as highly geared companies that survived the initial commodity-price hit several years ago are struggling to keep their operations afloat.

Sharp falls in commodity prices have pressured the balance sheets of resources firms from Canada to Brazil. Private debt firms are trawling for targets world-wide, seeking to put a growing cash pile to use. The available investment capital of private debt-fund managers globally reached a record-high US$199 billion at the end of June, according to data provider Preqin.


Australia is seen as a particularly attractive target because the country’s big banks, which have seen bad debts rise in their books, are increasingly reluctant to lend money to indebted firms.

U.S.-based distressed-asset investor Lone Star Funds opened an Australian office a few weeks ago, joining Oaktree Capital Management L.P., which set up here in March. With US$98 billion under management, Oaktree is the largest fund in the market for private debt, with the most money available for investment, said Preqin.

Several other powerful global hedge funds and private-equity firms—including Boston-based Bain Capital Credit L.P. and Hong Kong-based SC Lowy Financial—and so-called special situations teams have put staff on the ground in Australia in recent years. Minneapolis-based Värde Partners Inc. set up a Sydney office at the start of this year.

Some of these investors are looking to buy companies that can’t repay their debt, hoping to restructure them to make them profitable, while others plan to buy troubled loans on the cheap with the hope of selling them later at a profit, or converting them into equity as companies are restructured. Many are looking to step in as local banks retreat from riskier parts of the corporate-loan market.

In August, Moody’s Investors Service lowered its credit-rating outlook for Australia’s four major banks to negative from stable, saying problem loans, which started to rise earlier this year from record lows, will continue to grow.

Australian banks are under pressure from regulators to trim their exposure to troubled companies and put billions of dollars more aside to cover bad debts following a series of high-profile corporate collapses this year—including those of steelmaker Arrium Ltd. and U.S. coal producer Peabody Energy, which runs 10 mines in Australia. The four biggest banks fund 75% of corporate borrowing in Australia, central bank data show.

“Banks have to pull back from risky lending,” says James Marshall, a restructuring lawyer at Ashurst in Sydney. “You’re moving that risk to private debt markets.”

Dozens of mining-services companies, supplying everything from drilling equipment to workers’ cabins, are teetering under massive debt loads after mining companies cut spending when commodity prices fell. Prices for a basket of commodities from iron ore to gold have slumped roughly 60% over the past five years, according to an index compiled by Australia’s central bank.

“All aspects of the mining industry are becoming interesting right now. They’re all coming under pressure,” said Edgar Lee, a credit portfolio manager at Oaktree in Los Angeles.

Distressed-debt traders have also begun to circle sectors like housing and agriculture after the Reserve Bank of Australia and the country’s banking regulator warned lenders of large losses from defaulting loans of property developers and dairy farmers amid a glut of newly-built apartments and plummeting milk prices.

Australia has far fewer private debt buyers than the U.S., where they accounted for 85% of leveraged loans in 2013, according to Wells Capital Management.

“There’s a much bigger need for alternative providers of capital in Australia,” said Ilfryn Carstairs, the co-head of corporate and traded credit at Värde Partners, Inc. in London.

Debt traders also hope deals will increase amid a proposed overhaul of Australian insolvency laws. The government wants to adopt some elements of chapter 11 of the U.S. bankruptcy code, making it easier for troubled companies to seek outside help. Company directors currently risk being held liable for insolvency if they appoint debt-restructuring firms.

“This could encourage directors to bring matters forward. It would allow them to hire a restructuring adviser without fear,” said Clint Hinchen, a Melbourne-based partner at law firm Allens, who has worked as adviser in several big corporate restructurings and insolvencies.

More than 70 international investors are currently vying to buy the assets of heavy-haulage company McAleese Ltd., the latest casualty of the fading commodities boom.

Struggling under A$191 million (US$145 million) of debt, McAleese called in insolvency administrators in August after it failed to meet the conditions of a recapitalization attempt led by SC Lowy. The company was pushed to the edge after its main customer, Atlas Iron Ltd., cut freight rates to offset falling iron-ore prices, compounding the earlier loss of fuel-supply contracts with BHP PLC and Royal Dutch Shell PLC.

McAleese didn’t return requests for comment. SC Lowy said it remains very much engaged and supportive of the business.

http://www.wsj.com/articles/investors-dig-for-distressed-debt-in-australia-1476093753
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Rufus
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Here you go. You can pick up a nice coal mine or two, or buy a Lithium mine for the wife for her birthday.

http://www.miningassets.net/mines-for-sale/default.aspx?Country=Australia&Region=All&Com=All&Type=All
Take risks - if you win you will become wealthy, if you lose you will become wise
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