Blackstone Group LP's restructuring advisory business is booming as more companies hit the wall every day and need advice, the private equity firm's COO said on Thursday.
There is no end of that in sight and our view is that will go on for several years, COO Tony James said on a conference call to analysts on Thursday to talk about the firm's earnings.
Fees generated by the restructuring and reorganization advisory services unit rose $21.3 million in the quarter, driven by an increase in bankruptcies, debt defaults and debt restructurings, Blackstone said. For more details on its earnings.
But distressed investment opportunities have been somewhat less than some people expected, partly because lenders are buying time by amending terms for companies in trouble, he said.
Banks and lenders have been willing to help companies amend and extend their credit agreements in recent months, often even waiving interest payments that would have been due.
This has given more time to troubled companies to try to work out deals with suppliers or bondholders and possibly avoid bankruptcy, while allowing banks to focus on their biggest crises and avoid writedowns on some likely losses on their loans.
A lot of lenders are amending terms, kicking the can down the road, James said. That is cutting back the number of distressed situations to hit the wall and is definitely a factor toward the lower amount of distressed opportunities than some people thought.
James thinks the default part of the economy is still at the early stages and thinks that there will be distressed opportunities for the next year or two.
As the defaults start to come through, you'll see companies running out of money, exhausting their covenant capacity, not being able to refinance, he said.
James added the lowest-quality of the credit markets is probably a little ahead of itself in terms of pricing, but added he was not sure that would be sustained.
Investors have been pouncing on high-yield junk bonds all year on the bet these securities were overly battered and that these companies would not default on their debt as borrowing costs have dropped dramatically.
For instance, companies whose debt securities are rated CCC have been among the best performers in July, bringing total returns for the year to an astounding 56.5 percent, according to the Merrill Lynch Master II High Yield Index.
I think there will continue to be very interesting distressed opportunities for a long time, but its not a question of buying the market wholesale in a short period of time, said James.
(Reporting by Megan Davies; additional reporting by Jennifer Ablan and Emily Chasan; editing by Andre Grenon)