LONDON In a bid to profit from an expected rise in loan defaults in Europe, New York investment bank Dresdner Kleinwort Wasserstein is setting up a London unit to advise firms that are having difficulty paying their debts.
Ken Buckfire, co-head of restructuring at Dresdner Kleinwort, which is owned by Dresdner Bank AG, Germanys No. 3 bank, will transfer from New York to open the unit this month. For five years he has advised companies with a team of 30 bankers at Wasserstein Perella Securities, which Dresdner Bank bought last month.
We see a very significant increase in the level of defaults among companies that have issued high-yield debt in the last six years, Mr. Buckfire said. Many are telecom companies, and many wont achieve their business plan.
According to credit rating agency Moodys Investors Service, the default rate on high-yield or junk bonds worldwide jumped to 5.7% last year from 3.5% in 1998. Amid signs of a global slowdown, it predicts a 9.8% rate this year the highest since the 1990-91 recession.
Restructuring bankers advise companies that may need to sell assets, break themselves up, or negotiate with creditors. Some clients are threatened with bankruptcy. The business, which picks up as economies turn down, offers investment banks a way to make money when work advising on mergers and share issues wanes.
It is not always profitable, however. After months of work, the adviser takes most of its payment as a success fee perhaps 0.33% to 1% of the restructured companys debt. It gets no fee if the client collapses.