Hedge funds beginning to take a liking to shipping debt

An increasing number of hedge funds have been moving into shipping debt, as banks cut their exposure to the sector, Reuters reports.

Trade war worries and cost pressures have been dampening prospects for a proper recovery in many segments of the shipping sector, and European banks, particularly German lenders, have been trying to sell distressed and under-performing loans.

The European Central Bank’s banking supervisor has designated troubled non-performing loans in 2019 as “a concern for a significant number of euro area institutions”.

Private equity firm Avenue Capital, together with asset manager King Street Capital Management, were reported to have bought at least $100m of loans from investment groups Varde Partners and Oak Hill Advisors.

Last June, funds managed by Varde and Oak Hill purchased $1bn worth of legacy shipping loans – although most of these were said to be performing –from Deutsche Bank.

Greece’s Piraeus Bank was thought to be looking to sell some distressed shipping loans, with Reuters citing an unnamed source who said that the portfolio of shipping loans, called Nemo, was made up of non-performing and performing loans with a nominal value of between €500m and €600m, with a sale expected to conclude during Q2 2019.

Reuters said that Och-Ziff Capital Management was amongst the suitors for a €2.7bn distressed portfolio of shipping loans that was sold this month by German state bank NordLB. Some sources said that this was bought by private equity firm Cerberus.

German lender DZ Bank was reported to be trying to offload more than €1bn of shipping loans from its transport financing division DVB Bank, although there were thought to have been multiple delays with the sales process.