| NEW YORK, Sept 9
NEW YORK, Sept 9 Emerging market debt specialist
fund Gramercy on July 1 closed a distressed credit fund, having
raised just over $305 million, the firm wrote in a letter to
The Gramercy Distressed Opportunity fund II has so far
called 40 percent of each limited partners' capital commitment,
Gramercy said in a letter dated Sept. 3 that was provided to
The firm said that since the first capital call from June
2012 through July 31, the fund's net return is approximately
28.4 percent, which is a cumulative, time-weighted rate of
return based on drawn capital.
Gramercy said it has approximately $900 million focused on
the distressed debt strategy, which includes the recently closed
fund as well as separately managed accounts.
Robert Koenigsberger, the firm's founder, managing partner
and chief investment officer, told clients Gramercy believes an
environment of rising interest rates will "likely make
refinancing for many in the second-tier credits in emerging
markets extremely difficult."
"Sometimes, half the opportunity set that we have seen has
been classic dislocation. Dislocation in this environment is
occurring more often and with more velocity than we've seen in
quite some time," Koenigsberger said in a telephone interview.
"And the reason for that is the traditional participants in
emerging markets are leaving. And it is not just this quarter,"
Koenigsberger noted that weakened European banks, and some
U.S. banks that no longer have the flexibility to take higher
risks on to their own proprietary accounts, have pulled back
from being the traditional providers of secondary market
According to the letter, Gramercy's Distressed Opportunity
Fund II's top five exposures are: Argentina at 19 percent;
Hungary at 8 percent; Mexico at 7 percent; Kazakhstan at 7
percent and the Czech Republic at 5 percent.
Koenigsberger stressed that Gramercy holds a "very
diversified" position in Argentina, including restructured
sovereign debt as well as corporate and "other" assets.
The Greenwich, Connecticut-based firm faces the risk of a
default on the restructured Argentine government bonds it holds
if Buenos Aires exhausts the appeals process in U.S. courts and
fails to get overturned an order to pay holdout investors from
its historic default in 2001.
Argentina insists it will never pay the $1.33 billion award
to investors who held out from accepting restructured sovereign
In the portfolio of the recently closed fund are four
performing and three defaulted corporate bonds, one performing
and three defaulted sovereign bonds, three short-credit
positions and a diversified global basket of credit default
"We continue to see a larger number of rating agency
downgrades relative to upgrades, overall deteriorating leverage
metrics and the negative effects of softer commodity prices take
a toll on cash flow generation and already fragile balance
sheets," Koenigsberger said.
"As such, we anticipate an increase in corporate defaults,"