Distressed Investment Capital Head Fakes

All of us want to believe that there is an ample supply of capital available to invest in distressed assets, particularly for those situations which offer excellent potential returns for savvy distressed investors. And, there have certainly been deal professionals and articles suggesting that such capital is available, even if not as plentiful as in years gone by. But,

Is capital really available for distressed situations at this time?

Based on my work behind the scenes with leading professional service firms involved in the Restructuring world, I believe that such capital is much less available than the noise would have us believe.

Sure, there are funds that have raised large amounts for investment in distressed. But, my sense is that most of these investors are keeping their powder dry while they wait for what they perceive as something closer to the bottom of the downturn. A good example of such investors are the two that were the subject of my post Sage Advice from Two Investment Pro's.

Some of these investors also have investments in previous funds that will be where they will want to deploy some of the new money (subject to fund limitations on these types of transactions).

Let me make clear that there are certainly occasional distressed deals being done by courageous investors. But, the number being made has been considerably less than the buzz as to available funding for distressed.

So where has all of the buzz come from? You know, as well as I do, that the buzz has come from representatives from all manner of financial entities who have been out in the market saying their entity was definitely interested in doing deals. The skeptic in me has believed that increasingly, over the last six months, such claims have been more efforts to keep one's pipeline of potential deals full rather than true interest in consummating a current transaction.

I am not suggesting these reps were lying. I do think that, at minimum, there was a big gap between what they may have personally believed and institutional reality.

Well, the tide is turning. Over the last couple of months, more and more of these reps have been terminated - a clear sign that their employer is not looking for deal flow now, or even in the near term future. As bad as I personally feel about some of the quality professionals being laid off, I do feel good that the head fakes as to capital availability will be reduced.

Turning around a troubled company is difficult enough, especially in these challenging times. There is no time to be chasing solutions that are not real.

As sure as morning follows night, the appetite for quality distressed investments will increase. But, such increase will not likely occur quick enough to be a silver bullet for most current distressed situations.

That is not all bad for Restructuring professionals. The true pro's will have to use all their creativity to find solutions absent a silver bullet. Woe be to the novices, especially those who don't read head fakes well.