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Fixed Income

The Evolving Opportunity in Distressed Debt

September 2020 - 7 min read

As the pandemic recedes, some companies may have a harder time managing higher debt levels than others—and as weaker issuers undergo restructurings or other stressed situations, there may be opportunities for investors to deploy more capital into distressed debt strategies.

Whether COVID-19 has been cause or catalyst for tipping the global economy into recessionary territory, the credit cycle has certainly turned. Virtually every business has felt some impact as a result of widespread lockdown conditions and ongoing restrictions on activities, from dining out to travel—with revenues across some sectors declining 75–100% early on.

Due in large part to global policymakers’ unprecedented stimulus measures, many issuers today appear to have the liquidity necessary to bridge themselves through the initial shock from the pandemic. But one question going forward is which companies will be able to manage higher debt levels, particularly if confronted with a weaker global economy once the pandemic recedes. Inevitably, some will have a harder time managing than others—and as weaker issuers undergo restructurings or other stressed situations, there may be opportunities for investors to deploy more capital into distressed debt strategies.

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