Ellington Hires Distressed Trader Expecting Burst BubbleKelly Bit
Ellington Management Group LLC hired distressed debt trader Mark Heron from Credit Suisse Group AG as the $6 billion investment firm prepares for a decline in corporate credit.
“The idea overall is to get me in place for when the bubble we think exists today bursts,” Heron said in a telephone interview. “You currently have a situation where companies of lower credit quality are able to get aggressive deals done. Whenever that stops, there will be a great opportunity down the line.”
Wall Street is issuing collateralized loan obligations, which package leverage loans and parcel them into new securities of varying risk, at a record pace and underwriting standards for corporate credit have deteriorated, according to Michael Vranos, who founded the Old Greenwich, Connecticut-based firm in 1994 to invest in mortgage bonds.
Heron, 42, started at Ellington as head of distressed credit after previously running distressed debt strategy at Credit Suisse. He joined the Zurich-based firm in 1998 and left in June. Heron said he’s currently focusing on middle-market company credit.
Ellington joins Oaktree Capital Group LLC and Apollo Global Management LLC in expecting to capitalize on deterioration in debt markets. Oaktree, led by Chairman Howard Marks, is seeking $10 billion for a new fund with plans to sit on most of the capital until rising markets reverse course, three people with knowledge of the plans said.
Distressed-focused funds have found difficulty investing money as the U.S. Federal Reserve holds interest rates near zero and global corporate defaults remain low. Such defaults fell to 66 last year from a peak of 266 in 2009, according to data from Moody’s Investors Service. U.S. junk bonds have gained 146 percent since the end of 2008 and yields are at 6.25 percent. CLO issuance in the U.S. may reach $115 billion this year, exceeding the record $94 billion in 2007, according to JPMorgan Chase & Co. analysts.
“All the danger signs are there of a future crisis,” Apollo co-founder Marc Rowan said in April, speaking at the Milken Institute Global Conference in Beverly Hills, California.