Credit managers race to hire distress experts

Money managers are racing to add workers with restructuring and bankruptcy experience as they take in record amounts of cash to buy cheap assets battered by the economic fallout of the coronavirus pandemic.

Firms are also looking to protect long-standing investments in highly leveraged companies amid expectations of an uptick in troubled situations in the coming months, according to industry insiders. Credit shops including Owl Rock Capital Partners, Pretium Partners and PGIM have all hired distressed-debt specialists in recent weeks.

"As soon as COVID hit, clients started seeing more stress in their portfolios and we started getting more calls," Jonathan Goldstein of recruiting firm Heidrick & Struggles said in an interview. Mr. Goldstein helps private equity firms and hedge funds identify new talent. "They want someone who can step into C-level roles and turn around a company, or folks who can help steer businesses through choppy waters."

Money managers are looking to raise more than $70 billion to invest in troubled companies amid signs the global economic slowdown is set to worsen. The International Monetary Fund earlier this week cut its outlook for the world economy, predicting a much deeper recession and slower rebound than it anticipated just two months ago. Despite unprecedented support from the Federal Reserve to help stem the bleeding, the amount of distressed U.S. corporate debt is still more than 60% above what it was before COVID-19 was declared a pandemic, Bloomberg data show.

"We still have the most leveraged corporate sector that we've ever had, and I think the fallout of this crisis will result in profound and lasting changes to many aspects of the economy," said Irwin Gold, co-founder of Houlihan Lokey's financial restructuring group.

Returns in restructuring scenarios can vary widely, with results depending in part on court rulings, when troubled issuers decide to take corrective actions and when deals are completed. Yet for distressed investors, having the expertise to negotiate and defend a deal can often be the difference between reaping major gains or booking a loss.

Even before the pandemic struck, direct lender Owl Rock was looking to add a workout role to address the needs of its growing portfolio.

"Coming out of the new year, we started talking about it as we had north of 100 credits at that point, and though they were performing well, some of them were more maturing investments," said Alexis Maged, head of underwriting and portfolio management for the New York-based firm.

Head of Workouts Brian Finkelstein joined in April. The team may add another two or three more people in the near term, Mr. Maged said. The company has also repurposed a "SWAT team" of about five underwriters trained in restructurings to monitor areas of concern.

Pretium Partners, the $14.6 billion New York-based manager, recently brought in former Lehman Brothers Holdings General Counsel Matthew Cantor as it seeks to expand its capabilities in bankruptcy and distressed-debt investing.

In Newark, N.J., PGIM Fixed Income, part of the investment-management arm of Prudential Financial Inc., is also recruiting people with distressed-debt and restructuring knowledge to its credit team.

"While some of the analysts have varying degrees of distressed experience, we didn't have the deep expertise that our new hires bring to our line-up." Richard Greenwood, head of credit at PGIM Fixed Income, said via email.

PGIM is expected to announce an additional hire with restructuring expertise in its London office in the coming months, the people said, asking not to be identified discussing a private matter. A representative for PGIM declined to comment on the London addition.