Atalaya CEO sees more defaults
NEW YORK (Reuters) - The chief executive of Atalaya Capital Management, an investment fund and lender, said credit markets may rally this year despite a sharp increase in corporate bond defaults.
"We will see an acceleration of the default rate ... north of 20 percent" for junk bonds, Ivan Zinn said at the Reuters Private Equity and Hedge Funds Summit in New York on Wednesday. "That could present opportunities."
He said credit markets may rally "several hundred basis points" by the end of the year as confidence in the markets is slowly restored.
Investment-grade corporate bond spreads soared to a record 6.56 percentage points over Treasuries in December and have since narrowed to about 5.98 points, according to Merrill Lynch data. U.S. junk bond spreads ballooned to 21.82 percentage points in December and are now about 17.45 points.
Corporate credit spreads reflect that "the baby is getting thrown out with the bathwater," Zinn said.
He said he is looking for opportunities in corporate loans and equipment leasing companies.
Moody's Investors Service, in a report on Monday, said the default rate on bank loans to speculative-grade corporations rose sharply in 2008, and recovery rates on leveraged loans dropped.
Moody's said its U.S. leveraged loan default rate ended 2008 at 3.5 percent, up from the 0.3 percent in 2007. The ratings agency forecasts that 11.1 percent of U.S. leveraged loan issuers will default by the end of 2009.
Zinn said companies that have little chance of default are being "painted with the same brush," so investors may be able to find good value with higher-quality investments.
Atalaya, which focuses on special opportunities in private credit, primarily invests in small- and middle-market companies. Through an affiliate, it purchased the Bennigan's restaurant chain last year out of bankruptcy.
The firm, with offices in New York and Atlanta, manages about $400 million of committed capital and has invested more than $2 billion since its inception in early 2006.
(Reporting by Walden Siew; editing by John Wallace)
