Strategic Value Raises $918 Million Distressed-Debt Fund
(Updates with founder’s comment in fourth paragraph.)
Feb. 2 (Bloomberg) -- Strategic Value Partners LLC, the hedge fund founded by Merrill Lynch & Co. veteran Victor Khosla, said it raised $918 million from a distressed-debt fund to invest in underperforming assets.
The Strategic Value Special Situations Fund II closed earlier this week at 53 percent above its original target of $600 million, the Greenwich, Connecticut-based asset manager said in a statement today. The fund will focus on distressed assets in Europe, after drawing investors from the region, the U.S., Australia, the Middle East and Japan.
Growing investment opportunities have lured Los Angeles- based Oaktree Capital Management LP, Leon Black’s Apollo Global Management LLC, and New York’s Avenue Capital Group to Europe, where the default rate of non investment-grade companies is set to climb as the region’s sovereign debt crisis douses investor demand for high-yield bonds and loans. Banks may also cut $2 trillion of non-performing assets, according to PricewaterhouseCoopers LLP.
“SVP has an exceptional pipeline of deals that we estimate has grown 2.5 times in the last 18 months,” Khosla said in the statement.
Europe’s default rate may soar to 8.4 percent or more, from 4.8 percent at the end of 2011, as the recession crimps growth and company financing dries up, according to a Standard & Poor’s report on Jan. 19.
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 may 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 in 2001 and now oversees $4 billion. The firm has been involved in more than 100 debt restructurings in Europe.
--Editors: Chapin Wright, Andrew Reierson
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