One of the best trades of the year (in addition to buying beaten down, pre-bankruptcy coal stocks or our ongoing favorite trade, going long a basket of the most shorted names), was buying up distressed energy debt at the start of the year, when fears of mass defaults and liquidity events pushed debt prices to historical low levels. Some, like Oaktree, bought all they could. However, having ridden the wave higher, those same bottom-pickers are now calling the top.
Case in point, KKR is now selling distressed debt that it bought earlier this year, including in the energy sector, as the assets have appreciated more quickly than expected, credit co-head Nat Zilkha said in an interview with Bloomberg’s Erik Schatzker.
“We are in a very significant monetization cycle, particularly in more of the distressed investments that we made,” said Nat Zilkha, who oversees the 40-year-old firm’s credit investments, adding that “we got involved in some situations in energy and coal and other commodities earlier in the year, and those have played out quite well — frankly faster than we thought.”
Well, nothing like having jawboning central banks and jawboning OPEC eager to help out the thesis.
High-yield debt in the energy sector has rallied 65 percent since its Feb. 11 trough this year, according to the Bloomberg Barclays High Yield Energy Index, as commodities prices have risen. West Texas Intermediate crude has advanced90 percent to almost $50 a barrel since its February low this year.
So now that KKR is taking profits in distressed energy where is the financial conglomerate looking next? Zilkha – who helps oversee New York-based KKR’s special situations, mezzanine, direct lending, long-short, opportunistic and high-yield credit funds – said the asset manager is targeting deals in Europe’s non-performing loan market and in Asia. Chinese banks hold more than $1 trillion in bad debt, he said, and Indian institutions have several hundred billion dollars’ worth.
It remains to be seen if KKR called the top. However, with $131 billion in holdings, we are confident that many of the more marginal players will quietly follow suit now that one of the biggest players is getting out.
via http://ift.tt/2eRpCwG Tyler Durden