The extended duration of the current credit cycle has revealed three waves of stressed opportunities, according to John Pavelski, Co-Head of Credit Opportunities for North America at Carlyle.
First Wave of Traditional Distressed Sightings: This consists of fundamentally flawed businesses in challenged industries. Companies in this bucket would face difficulties in any business cycle and should have been restructured regardless of the environment.
Second Wave of Early-Stage “Disruptive” Business Models: This includes companies with disruptive business models that successfully raised capital during the boom times. The cost of capital for these companies was so low (especially compared to now), that investors are just seeing basic concerns such as limited EBITDA and cash flow generation come to light.
Third Wave of “Good Companies with Challenged Capital Structures”: Unlike the prior waves, this group offers healthy fundamentals; however, elevated valuations and leverage levels are causing significant stress. Often facing floating rate debt that has skyrocketed, these companies struggle to adapt to the extended period of elevated interest rates and compromised capital markets.
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Managing Director at SierraConstellation Partners
5moGreat addition to the team. Looking forward to working together