EY Luxembourg

End of government grants in Europe: an opportunity for distressed debt funds?

In this second video demystifying the « Dark Knights » of the finance industry, Julien Dubar debates whether the end of government grants – which until recently supported the consequences of the pandemic, could become an opportunity for distressed debt funds.

So-called special situations and distressed debt funds tend to profit from momentums when economies are in recession by investing in high yield bonds or loans issued by stricken companies. The basics of this little-known investment strategy had been explained in the first video of our series.

When the Covid-19 crisis hit, the central banks and governments provided rescue financing to the whole economy right on time, leading to a powerful market rebound and a good economic recovery all around the world.

With the low cost of the debt on the financial markets, turmoiled companies are however more pressured than ever, making them more vulnerable to any economic downturns. The end of the crisis measures, the sudden rise of the inflation as well as the increase of the lending rates could therefore be the starting point of the difficulties for highly leveraged companies.

Hence, how are special situation and distressed debt funds getting prepared to respond to the difficult situation of the global economy, and the associated investment opportunities? Answers in this video by Julien Dubar, Senior Manager in EY’s Private Equity practice.