MatlinPatterson seeks $4.5 billion for new fund
NEW YORK, Feb 26 (Reuters) - Distressed debt specialist MatlinPatterson LP is looking to double its assets under management this year to $8 billion in a new fundraising aimed at benefiting from an expected rise in defaults, people familiar with the matter said on Monday.
New York-based MatlinPatterson, which currently manages $3.9 billion, is looking to raise $4.5 billion by mid-year for its third buyout fund -- its largest fundraising to date, these people said.
The move comes amid an expected rise in the historically low junk bond default rate of less than 1 percent last year, as debt-strapped companies found easy access to debt refinancings. However, recent bankruptcies among subprime mortgage lenders and the looming threat of interest rate rises have heightened concerns that default rates could be set to rise in other debt-laden industries.
The high-yield default rate is projected to rise to 2.5 percent this year and to 3.7 percent in 2008, according to Prof. Edward Altman of the New York University Stern School of Business, a noted bankruptcy expert.
MatlinPatterson, which specializes in taking controlling positions in companies either in bankruptcy or threatened with debt defaults, declined to comment. Private equity and hedge funds are barred by regulatory rules from publicly discussing fundraisings.
The firm, which was founded by former Credit Suisse (CSGN.VX) distressed debt experts David Matlin and Mark Patterson, this year raised $500 million for a new distressed debt hedge fund in a diversification move away from buyouts.
In the last couple of years, distressed debt investors have been active in bankrupt airlines, auto parts makers and energy producers.
MatlinPatterson, for instance, invested heavily in NRG Energy (NRG.N) several years ago and also bought certain Duke Energy (DUK.N) power generation assets in 2004. It is also involved in the bidding for Alitalia AZPIa.MI, the Italian airline and is currently the majority shareholder of Polymer Group (POLGB.OB), a materials maker.
Marc Lasry, founder of the $13 billion hedge fund Avenue Capital Group LLC, is forecasting more bankruptcies and defaults among companies that were taken private in the wave of leveraged buyouts in recent years.
Lasry told a recent conference he also expects European and Chinese banks to sell more nonperforming loans in coming months, generating opportunities for distressed debt investors. Should the economy slow and interest rates rise, other new distressed opportunities could arise, said Lasry.
"All you need is a default rate of 3, 4 or 5 percent and you will have $1 trillion to $2 trillion of distressed debt out there," said Lasry, whose fund typically trades in non-controlling positions in distressed debt. (With additional reporting by Svea Herbst-Bayliss)
