SCHWARZMAN: 'A new distress cycle is clearly underway'
Steve Schwarzman, CEO of mega-investor Blackstone, said that the distressed debt segment of the market - debt from companies nearing or in bankruptcy - is looking more and more attractive."On the flip side, a new distress cycle is clearly underway in the energy credit area and other needs for credit which create significant opportunities for our business," said Schwarzman in the company's quarterly earnings call Thursday.Advertisement
This makes sense, as default rates for high yield debt are creeping up overall and skyrocketing for the energy sector. In turn, this is opening up opportunities for Blackstone's debt arm GSO, according to Schwarzman.
"I believe GSO is going into a period that's extremely positive for them where they will be able to expand their business, given the lack of liquidity, and changed governmental regulations that are going to affect that part of the market, creates a unique opportunity for GSO," continued Schwarzman.Essentially, as the companies find themselves in distress, GSO can step in with financing. With the default rate jumping, GSO's dealmaking will most likely rise with it.
Michael Chae, CFO of Blackstone, agreed with Schwarzman's assessment. He also added that while the number of deals GSO was able to get through in the first quarter was muted, there would soon be more on the way.
And GSO had an investor conference yesterday, and we're talking about how their pipeline has never been stronger actually. They're really, really excited, chomping at the bit around the market opportunity Steve and I talked about. And the pipeline and the backlogs are picking up, and the pricing in terms available to them are quite attractive. So, I think you will surely see - almost surely see if this market stays put more or less, or the deal volumes picking up at GSO.
To quickly break that down, one of GSO's main functions to to finance purchases of companies. Due to the serious downturn in markets during the first quarter, it was harder for buyers to finance these deals and thus fewer were completed.Now, the markets are coming back just enough to help buyers finance their deals, creating opportunity for GSO and Blackstone.Advertisement
This sort of performance is far removed from the rest of Wall Street, which is struggling across the board. Distressed debt, however, is making a killing for many hedge funds and clearly this is happening at places such as Blackstone as well.
So while companies, especially energy companies, are flailing in the current environment, Blackstone's GSO is ready to step right in.
- Rupee rises 14 paise to 74.52 against US dollar in early trade
- Zydus Cadila gets approval from Mexican authority to test COVID-19 drug
- Walgreens, NZ-based Stuff join 'boycott Facebook' campaign
- The story behind Geometry Encompass’ anthem ‘We Got This’ with Ankur Tewari and Clinton Cerejo
- Work from home has led to an increase in sales of our home appliance range: Vijay Babu, LG Electronics India