WASHINGTON – The global distressed debt market is apparently so ripe it’s ready to fall off the vine, and Dallas-based private equity group Lone Star has kicked off the harvest with its purchase of German mortgage lender Hypo Real Estate’s $4.4 billion real estate loan portfolio. But German banks are apparently looking to reap this crop themselves.
Gunter Dunkel, a board member at one of Germany’s state-owned Landesbanken, NordLB, said in the FT on Friday that “Only international funds, mainly from the United States, are in the market as buyers of distressed debt. We’re working on a project to create our own competitive vehicle for the public sector.”
Another Landesbank executive, WestLB’s CEO Thomas Fischer, also expressed an interest in such a clearinghouse, to the Financial Times in August.
“In recent years German banks have finally become aware of the fact that something could be done with defaulting clients, other than sit by and hope for the best. A viable distressed debt market is finally emerging in Germany,” a Spring 2004 investing brief by German law firm Broich Bayer Von Rom said. “The shifting attitude of German banks toward their distressed loans, changes in corporate finance and massive capital market reforms have lead and will increasingly lead to a rise in distressed investments in Germany.”
Debt resale is an easy way for banks to rid themselves of bad debt. By selling off bad debt, banks can clean up their balance sheets and financial ratios. Also, selling off such debt is easier than devoting employees and man-hours to the task of collecting it, as distressed debt investors can be more flexible as well as more aggressive in collecting the debt, as noted in The Banker.com.
For this complete story, please visit Distressed Debt a Windfall for Investors.
