Tuesday, March 1, 2011

KKR Taps York’s Mukadam to Head Europe Distressed Debt

KKR Taps York’s Mukadam to Head Europe Distressed Debt

By Patricia Kuo

March 1 (Bloomberg) -- Kohlberg Kravis Roberts & Co. hired Mubashir Mukadam from York Capital Management to head its European special situations group as it expands distressed-debt investment.

Mukadam, 37, most recently a London-based managing director at York Capital, reports to Nat Zilkha and Jamie Weinstein, co- heads special situations within KKR Asset Management, said Zilkha, who was relocated to London from San Francisco to continue to build the global distressed asset strategy.

KKR, which manages $61 billion, is looking to boost lending to companies on the brink of default as banks bound by new capital requirements speed up sales of the debt, which typically yields at least 10 percentage points more than benchmark rates.

“We see a lot of opportunities here, in many hundreds of billions of euros in the short term,” London-based Zilkha said in a phone interview yesterday. “We have very long-term capital so we can take a long-term view on value and not really be constrained to how the investment is going to trade in the next few months. The two largest opportunities here are going to be financial institutions and real estate.”

The firm will look to add more distressed-debt experts, Zilkha said. The appointment of Mukadam is the second senior hire KKR has made for the business. Jessica Beattie joined KKR’s New York office in September from Eton Park Capital Management to focus on secondary distressed and structured investments.

Before 2008, Mukadam was a director of Deutsche Bank AG’s distressed products group in London.

‘House of Cards’

The Basel Committee on Banking Supervision more than doubled capital requirements for banks in September, forcing lenders to sell speculative-grade debt with the highest capital charges.

“ European banks have publicly committed to regulators to sell a trillion euros of assets over the next several years,” Zilkha said. “ A second opportunity we see comes on the heels of the restructuring that was done in 2008 and 2009. If the wind blew the wrong way the wrong day the whole house of cards would come falling down again.”

Government austerity measures to cut budget deficits as benchmark lending rates are poised to rise over the next year may conspire to topple Europe’s neediest borrowers. Yell Group Plc, which restructured its debt in 2009, may breach covenants by March next year, Standard & Poor’s said Feb. 4.

Pfleiderer, Eircom

German wood processor Pfleiderer AG, Alliance Medical Ltd., the U.K. maker of medical-imaging equipment including CT scanners and X-ray machines, Eircom Group, Ireland’s largest phone operator, and waste management company Cory Environmental Ltd., are among the European companies whose loan prices have fallen below 70 percent of face value in the past six months ago, according to Markit Group Ltd.

Senior loans of Neumarkt, Germany-based Pfleiderer were last quoted at 68 percent of face value, down from 88.5 percent six months ago. Alliance Medical’s loans dropped 17 percent to 62.3 percent of face value, according to Markit.

Debt is considered distressed in the secondary market when its value falls to less than 75 percent of face value, or yields rise to at least 10 percentage points more than benchmark rates, according to Babson Capital Management LLC.

Distressed-debt funds seek to profit by buying assets at below their face value, providing high-yield financing which could give rights to a company’s shares and opportunities to restructure it or install new management before selling it at a higher value. They posted an average 15.5 percent return last year, making them the second-best performers in indexes compiled by hedge fund advisory firm Hennessee Group LLC.

“We will see more U.S. distressed-debt investor involvement in the European market,” said Eugene Regis, a London-based credit strategist at Barclays Capital. “Assets will be sourced mainly off bank balance sheets as banks look to reduce risk ahead of higher capital requirements.”

To contact the reporter on this story: Patricia Kuo in London at pkuo2@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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