Distressed debt investors in Australia expect more financial pressures in industries from mining services to manufacturing as they seek to buy the soured loans of small- to mid-size companies.
Investors are starting to buy debt positions in smaller Australian firms instead of pursuing larger, more competitive opportunities such as the sale of Lloyds Banking Group Plc’s local loan-book, according to Mick Calder, an executive director of restructuring adviser 333 Management Ltd. Mining companies and the firms that service them are expected to face the most pressure in the next year, a survey released today by 333 and Turnaround Management Association Australia found.
“We continue to see incumbent lenders willing to entertain the notion of selling their debt positions,” Calder said today. “While the large debt trading and loan portfolio sales have been well-publicized and sought after, it’s in the mid-cap space that opportunities may arise in fiscal 2014.”
Distressed debt buyers are seeking opportunities as demands on working capital, low margins and large project risks are expected to create challenges for mining services companies in the next 12 months, according to the survey. In the last year, debt trading by investors such as Oaktree Capital Group LLC, Apollo Global Management LLC and Centerbridge Capital Partners LLC have precluded restructurings of companies including Nine Entertainment Group Ltd and Billabong International Ltd.
A trust managed by Sankaty Advisors LLC agreed to buy a A$371 million portfolio of loan assets from Lloyds last month, as Britain’s biggest mortgage lender offloads assets it no longer considers essential. Westpac Banking Corp. and National Australia Bank Ltd. are among lenders that made preliminary bids for its Australian assets, people familiar with the matter said last month.
Investors are seeking to acquire bad loans which are sitting on local banks’ balance sheets, according to Calder. “There is a more creative sector that’s moving down into mid-sized companies to acquire debt positions,” he said.
Some 41 percent of survey respondents expect a decline in Australia’s manufacturing industry over the next year. The nation’s retail and consumer goods companies are also expected to endure more financial distress, even after some significant restructuring in the previous four years, the survey said.
The survey’s 129 respondents included equity investors, lawyers, lenders and turnaround and insolvency advisers. It was released ahead of the Turnaround Management Association Australia conference in Melbourne tomorrow.