C.M.O. 4.8.2009
Credit Market Overview
April 8, 2009
April 8, 2009
Moody’s Investor Service said yesterday that 35 companies defaulted in March, the highest single month total since the Great Depression, bringing the total for 2009 to 79. M.I.S. also said that the default rate in the high yield sector rose to 7% from 4.1% at the end of 2008. Additionally the company expects the existing rate to more than double to 14.6% by the end of this year. Which, if you’re looking for a spec of good news in all of this, is lower than the 15.3% rate Moody’s predicted as a year end rate last month. With news like that no wonder they call themselves moody!
This could make for another interesting year in the hedge fund community as during an interview published in Lipper HedgeWorld, Mark Kary, CEO of Polar Capital said he thinks: “There is a pretty scary consensus around ... a lot of people are chasing the same idea. People are looking at credit to the exclusion of everything else. In January last year, the three things people were looking at were commodities, real estate and emerging markets. Arguably they were the three disaster trades of last year. This year everyone is looking at credit, distressed (debt) and CTA's, every man and his dog is raising money for distressed."
I’m not quite sure if he has a dog as a pet but Leon Black who is top dog at Apollo AP Alternative Investments, seems to have a few in his portfolio. The fund was down 45% in 4Q08 and 60% for all of 2008 and is credited by Andrew Bary of Barron’s as having “orchestrated some of the worst LBO’s in the buyout boom of recent years.” These include three companies, Harrah’s Entertainment, the casino operator, Claire’s Stores, a retailer of costume jewelry and real-estate broker Realogy, with the dubious distinction of being on Moody’s “High Risk of Default” list.
Apollo’s bad luck with the casino doesn’t seem to stop there as the debt of 10 of the companies it has taken private since 2006 is now trading lower than $0.30 on the dollar, if you can get a quote, and the European listed shares of AP Alternative Assets (AAA.Euronext) are trading at $1.00 after having debuted at $20.00.
Mr. Black is not alone it seems as the venerable Kohlberg Kravis Roberts has met a similar fate with it’s LBO portfolio and KKR Private Equity Investors (KPE.Euronext) saw half of it’s assets disappear in 2008 pushing it’s stock price down to $12.78 at year end and around $3.00 more recently.
If players like Black and KKR, who both cut their teeth while Mike Milken was King of Junk, are having troubles one can only imagine what is happening at some of the less experienced shops. It also makes Moody’s glum forecast seem more fateful and Mr. Kary’s prescience more possible.
Enjoy the week.
Jim Delaney
This could make for another interesting year in the hedge fund community as during an interview published in Lipper HedgeWorld, Mark Kary, CEO of Polar Capital said he thinks: “There is a pretty scary consensus around ... a lot of people are chasing the same idea. People are looking at credit to the exclusion of everything else. In January last year, the three things people were looking at were commodities, real estate and emerging markets. Arguably they were the three disaster trades of last year. This year everyone is looking at credit, distressed (debt) and CTA's, every man and his dog is raising money for distressed."
I’m not quite sure if he has a dog as a pet but Leon Black who is top dog at Apollo AP Alternative Investments, seems to have a few in his portfolio. The fund was down 45% in 4Q08 and 60% for all of 2008 and is credited by Andrew Bary of Barron’s as having “orchestrated some of the worst LBO’s in the buyout boom of recent years.” These include three companies, Harrah’s Entertainment, the casino operator, Claire’s Stores, a retailer of costume jewelry and real-estate broker Realogy, with the dubious distinction of being on Moody’s “High Risk of Default” list.
Apollo’s bad luck with the casino doesn’t seem to stop there as the debt of 10 of the companies it has taken private since 2006 is now trading lower than $0.30 on the dollar, if you can get a quote, and the European listed shares of AP Alternative Assets (AAA.Euronext) are trading at $1.00 after having debuted at $20.00.
Mr. Black is not alone it seems as the venerable Kohlberg Kravis Roberts has met a similar fate with it’s LBO portfolio and KKR Private Equity Investors (KPE.Euronext) saw half of it’s assets disappear in 2008 pushing it’s stock price down to $12.78 at year end and around $3.00 more recently.
If players like Black and KKR, who both cut their teeth while Mike Milken was King of Junk, are having troubles one can only imagine what is happening at some of the less experienced shops. It also makes Moody’s glum forecast seem more fateful and Mr. Kary’s prescience more possible.
Enjoy the week.
Jim Delaney
Labels: CDS, CEC Strategy, correlation, credit, cross asset, equity, Jim Delaney
posted by Jim Delaney at
3:47 AM
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