Strategic Value Partners LLC is raising about $2 billion for two distressed-debt funds to profit from an increase of underperforming assets in Europe, according to two people with knowledge of the situation.
The SVP Special Situations Fund II has garnered $750 million of demand from investors, exceeding its original target of $600 million, said the people, who declined to be identified because the plans are private. The Greenwich, Connecticut-based asset manager is seeking to close the fund early next year at a maximum $1.1 billion, the people said. The firm is targeting $750 million for the Global Opportunities Fund II that aims to take over distressed companies by buying their debt.
The market for distressed debt in Europe is growing as banks shed loans to meet regulatory capital requirements and the region grapples with the potential break-up of the euro amid fiscal imbalances from Greece to Ireland. The prospect of as much as $2 trillion of forced sales is luring Los Angeles-based Oaktree Capital Management LP, Leon Black’s Apollo Global Management LLC, and New York’s Avenue Capital Group to Europe.
Andrew Dowler, an external spokesman in London for Strategic Value Partners, declined to comment.
Distressed debt typically yields at least 10 percentage points more than government bonds. Distressed-debt funds seek to profit by buying assets at below their face value, providing high-yield financing which could give rights to a company’s shares and opportunities to restructure it or install new management before selling it at a higher value.
Strategic Value Partners was founded by Victor Khosla in 2001 and now oversees $4 billion. The firm has been involved in about 100 debt restructurings in Europe in the past seven years.
The speculative-grade default rate in Europe rose to 2.6 percent in October from 1.4 percent in September, according to a Nov. 7 report by Moody’s Investors Service, which said defaults in the media, advertising, printing and publishing industries will be the highest.