As a possible recession pushes more and more companies into duress, some of the best buying opportunities in the last 15 years are coming, says Oaktree Capital Group LLC’s co-founder Howard Marks, and his firm is standing ready to finance those struggling companies, reports an article in Bloomberg.
U.S. inflation has peaked, and rates will likely hover around the 5% mark for the next 5 to 10 years, Marks believes. Amidst those higher rates, consumer demand will fall, and many companies will find themselves in “significant distress,” he told investors in Singapore, later echoing the same sentiment in an interview with Bloomberg News. After last year’s peak, things will fall far enough that many companies will “consider it hopeless,” and that provides a great buying opportunity. Assets will be inexpensive, and investing in companies that are benefitting from loans at high yields will be a safe bet.
With the Fed raising rates at such a swift pace, credit markets have tightened, as many banks that once backstopped loans at a lower price are now seeing demand for higher yields. Firms that specialize in distressed debt are seeing the situation as an opening, as those banks begin to sell off the loans at a steep discount. Even though most U.S. corporations aren’t heavily leveraged, that distress will add up. This is especially true in the tech world, where so much buyout over the past 13 years has resulted in a mountain of debt. That’s going to turn the market into a smorgasbord for both buyers and lenders, Marks says. “We’ll be looking among the ruins for great bargains,” he told Bloomberg.
———————————————
Validea runs stock and ETF models based on investment strategies with proven long-term track records. If you’re new to Validea, consider taking a look at our product overview or introductory videos.
