DISTRESSED DEBT FUNDRAISINGPreqin Ltd. 2018 / preqin2Private Debt Spotlight|May 2018 T he distressed debt market in NorthAmerica remains the largest globallyin 2018: 75% of all distressed debt fundsraised since 2015 are primarily focusedon the region, amounting to an aggregate$73bn in capital secured (Fig. 1). 2016 sawthe highest distressed debt fundraisingtotal since 2008, with $33bn secured across21 funds. Since 2004, a loose pattern hasemerged in the distressed debt fundraisingcycle, with totals peaking every four yearsfrom 2004 to 2016, seemingly in stepwith the US presidential election cycle.Economic uncertainty has at times beenbuoyed by a combination of factors ¨C mostnotably the political climate of globaleconomic powers ¨C in turn spurring upticksin the fundraising ability of distressed debtfund managers.Fortunately for fund managers,institutional investors in private debtremain hungry for distressed debtexposure, with the majority (52%) of thosetracked by Preqin showing a preferencefor the strategy. In Q1 2017, 46% of the3,200 active private debt investors hada stated preference for distressed debtover the next 12 months. This increase indemand comes at a time when many activeplayers in both public and private marketsforesee a potential correction on thehorizon, after nearly a decade of economicexpansion in the US. Given the explosivegrowth and outsized performance seen indirect lending both globally, and in the USspecifcally, it follows suit that distresseddebt funds could fourish in the upcomingsection of the debt cycle. At this point, bothmanagers and institutional investors seemto have accrued capital and exposure todistressed vehicles in preparation for thenext phase in the credit cycle.Knowing that investors currently harboura positive outlook on distressed debtinvestment, debt managers are currentlytargeting $36bn in capital globallyacross 47 vehicles (Fig. 2). The NorthAmericanfundraising market makes upthe largest amount overall, with 31 fundstargeting a total of $24bn, while thesix Europe-focused funds are targeting$6.8bn. With a fund size of €3.0bn, OCMPrincipal Opportunities Fund from OaktreeManagement raises the average targetsize for the European group to more than$1bn, despite being one of only two fundsseeking this amount of capital. Despite managers failing to securesubstantial amounts of capital in 2017,there are four Asia-focused funds in marketas at April 2018, targeting an aggregate$3.2bn in capital. With a target size of overDISTRESSED DEBTFUNDRAISING Although distressed debt fundraising fgures have slowed over the past three years, dry powder remains high. We examine the current climateand outlook for the future. 18 2522 8 7 8 6 1 2 0.3 0 5 10 15 20 25 30 35 40 2015201620172018 YTD Asia Europe North America Source: Preqin Ag gre ga teCa pit alRa ise d ( $b n) Fig. 1: Annual Distressed Debt Fundraising by Primary Geographic Focus, 2015 - 2018 YTD (As at April 2018) 31 64 33 23.7 6.8 3.2 0.91.0 0 5 10 15 20 25 30 35 North AmericaEuropeAsiaLatin AmericaDiversified Multi-Regional No. of Funds RaisingAggregate Capital Targeted ($bn) Source: Preqin Primary Geographic Focus Fig. 2: Distressed Debt Funds in Market by Primary Geographic Focus (As at April 2018) DISTRESSED DEBT FUNDRAISINGPreqin Ltd. 2018 / preqin3Private Debt Spotlight|May 2018 $1.5bn (CNY 10bn), Shoreline Capital CNYFund from China-based Shoreline Capitalis seeking the most ambitious amount ofcapital for investment in the region. With unprecedented levels of debt raisedin strong markets since 2009, defaultsin 2017 remained relatively low, butwith much of that debt due in the nextfew years, it is likely that default activitycould pick up in 2018 and beyond. Thisis the primary reason for distresseddebt managers accruing capital at aninfated pace over the past 3-4 years, inpreparation for higher levels of corporatebankruptcy in the US.For at least the next few years, bankruptcyactivity is set to remain at a relatively highlevel, again due to the sheer amount ofdebt that was printed in the past decadecoming due. Even with the market¡¯scurrent performance, it is likely that theleveraged and high-yield loans madeover the past fve years will require someform of restructuring or refnancing.Furthermore, complications in refnancingfrom less receptive debt markets couldbolster the level of bankruptcies movingforward. Overall, there are likely manyopportunities coming into play for well- prepared distressed debt managers andinvestors as the credit cycle advances andnumerous debt obligations meet theirdeadlines in 2018 and 2019.2.7 7.98.9 141313 27 43 3635 4345 5350 48 7778 7174 0 10 20 30 40 50 60 70 80 90 De c-0 0 De c-0 1 De c-0 2 De c-0 3 De c-0 4 De c-0 5 De c-0 6 De c-0 7 De c-0 8 De c-0 9 De c-1 0 De c-1 1 De c-1 2 De c-1 3 De c-1 4 De c-1 5 De c-1 6 De c-1 7 Ap r-1 8 Source: PreqinDr y P ow de r ($ bn ) Fig. 3: Distressed Debt Dry Powder, 2000 - 2018 Fig. 4: Largest Distressed Debt Fund Managers by Estimated Dry Powder (As at April 2018) FirmHeadquartersTotal Funds Raised in Last 10 Years ($bn)Estimated Dry Powder ($bn) GSO Capital PartnersNew York, NY33.314.3 Oaktree Capital ManagementLos Angeles, CA51.57.6 Centerbridge Capital PartnersNew York, NY18.65.8 Cerberus Capital ManagementNew York, NY11.05.7 Apollo Global ManagementNew York, NY19.25.4 Fortress Investment GroupNew York, NY16.43.4 Bain Capital CreditBoston, MA14.03.3 KKRNew York, NY11.73.3 Carlyle GroupWashington D.C.6.13.0 CarVal InvestorsHopkins, MN10.93.0 Oak Hill AdvisorsNew York, NY5.23.0 Source: Preqin PREQIN¡¯S PRIVATE DEBT DATA Preqin¡¯s award-winning private debt data covers all aspects of the asset class, including fund managers, fund performance,fundraising and institutional investors.This comprehensive platform is ideal for fund marketers and investor relations professionals focused on private debt andcredit funds.preqin/privatedebtSOURCE EVALUATE investment opportunities GAIN unparalleled industry insights investors for funds Register for a demo today: preqin/privatedebt Access market-leading globaldata, insights and intelligence.¡£¡£¡£¡£¡£¡£