Alternative investors hunt yield in post crisis Europe under review at Debtwire’s European Forum

The main theme of this year’s event will be the hunt for yield in the current low interest rate environment.

In the first half of 2014, a flood of money pouring into the European debt market compressed yields, thinning returns for buysiders. The ability to cheaply refinance debt and direct lenders’ increasing appetite for deals helped many potential distressed situations, such as Swiss vending machine operator Selecta, to avoid a restructuring.

The event will touch upon the effect that the European Central Bank’s asset quality review (AQR) stress tests, whose findings are due at the end of October, will have on European banks and distressed opportunities.

Andrew Merrett, European Head of Restructuring at Rothschild said: “Europe is where it’s at right now for distressed paper volumes. The recent downturn in the credit markets points to more restructurings and event-driven activity as well. There’s going to be a lot to do in 2015.”

Mario Oliviero, Deputy Editor, Debtwire Europe said: “Trading volumes picked up already in the fourth quarter of 2013 and since then we have witnessed an increased propensity by banks to sell assets at a discount. It was probably caused by increasing asset prices, which helped keep losses low, and also by banks preparing for the AQR. From what we gather, the markets do not seem to believe the stress tests will create a flood of opportunities, but they could definitely force small financial institutions into some form of restructuring and speed up the disposal of non-core assets. Europe as a whole remains highly levered compared to the US. There are sectors such as shipping and real estate where assets are still firmly held, and some regions, like Italy or France where the deleveraging process is still at the beginning.“

Speaking on the ‘Distressed Opportunities’ panel, James Slessenger, European Managing Director and Senior Covenant Analyst, Xtract Research Europe, stresses that “with a generally uncertain outlook, there are certainly bonds and loans out there that will be more sensitive than others, either through structural issues, business model or high leverage. Despite that, creditors’ protections, both in loans and bonds, have continued to get weaker.”