By Tom Hals
Jan 30 (Reuters) - Investors in distressed company debt
expect U.S. corporate defaults to remain low this year, but they
are split over whether there will be a pickup in bankruptcy
filings by large companies.
Those were the results of a poll of 100 hedge fund managers,
traders and asset managers by Debtwire, Bingham McCutchen and
Every respondent expects the default rate in 2013 to be
below 4 percent, thanks to low interest rates and the
availability of credit, the survey said. In last year's survey
16 percent of respondents expected a default rate above 4
The default rate ended 2012 at 3.2 percent, according to
Moody's, which is forecasting the rate to dip to 3.0 percent by
the end of this year. The long-run average is 4.5 percent,
Distressed debt investors specialize in the expensive,
high-risk strategy of buying corporate debt at knock-down prices
when a company defaults or files for bankruptcy, which forces
traditional fund managers to sell.
Distressed investors such as Oaktree Capital Management or
Centerbridge Partners often play an active role in restructuring
the company, which can generate enormous profits.
The respondents were split on whether they will have an
increase in bankruptcies by companies with at least $150 million
in debt. Forty-eight percent expect the number to increase this
year, but the rest expect the number to fall or remain at last
year's level of 17 large bankruptcies.
Respondents were also more focused on the U.S. economic
outlook this year, which 61 percent cite as the biggest
influence on their decision making, replacing last year's most
prominent concern, Europe.
Only 25 percent cited Europe in this year's survey, even as
59 percent said not enough has been done to alleviate the risk
that Europe's debt crisis could cause a global economic
While the respondents see fewer defaults, 36 percent are
expecting to make returns of more than 15 percent. That's up
from 25 percent that expected those type of returns last year.
In line with the expectations of higher returns, nearly
two-thirds expect to allocate between 21 percent and 60 percent
of their assets to distressed debt.
Last year, most of the respondents said they would allocate
less than 20 percent to distressed debt.
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