Insolvency Is History If Bad Debt Market Growth Endures; 22legalfinance
The growth of the UK distressed debt market and resultant trend towards restructuring and debt trading could see the end of the traditional large corporate insolvency, according to advisors at accountants Mazars.
With institutional investors and hedge funds both increasing capital allocations for distressed debt investment, companies facing financial difficulties are more likely to secure a second or third restructuring where they would previously have struggled to secure new capital or refinance.
Steve Wood, partner and insolvency specialist at Mazars in Birmingham, said: "Trading in distressed debt occurs when a creditor decides that it is more valuable to their business to secure a reduced but quicker return on the loan than it would be to pursue a potentially bad debt over a longer period.
"In such cases, the original lender may look to repackage and sell on the debt to a third-party, specialist investor, such as a hedge fund or institutional investor, which is better placed to deliver longer term returns on such investments.
"The UK market in distressed debt was not really established until the start of the 21st century and tightening economic conditions, evolving EU banking legislation and competition from the long established US debt trading market have driven significant growth over recent years.
"For companies facing financial difficulties, this means that lenders that previously pushed for recovery action when repayments proved to be problematic may now consider selling on the debt to a new investor. …