The buildup of debt is a “coming attraction” for those who invest in distressed companies.
That is according to Howard Marks, the billionaire cofounder of Oaktree Capital Group, who was speaking on The Bloomberg Advantage podcast with Carol Massar and Cory Johnson.
Marks built his career largely on buying bonds of companies that have run into trouble. Oaktree, the company he cofounded, now manages $97 billion.
“At the present time there are very few great opportunities for distressed debt because the environment is so salutary and interest rates are low, so there’s no reason for companies to be defaulting,” Marks said. “But the buildup of debt is a what we call a coming attraction, and it bodes well for the distressed-debt supply in one, two, three years from now.”
Some say there are signs of a default cycle looming, largely driven by energy and mining companies amid a plunge in oil prices. Companies around the world have defaulted on $50 billion of debt so far, according to a study by credit-rating agency Standard & Poors.
Steve Schwarzman, CEO of mega-investor Blackstone, said in April that distressed debt is looking more and more attractive, highlighting opportunities in the energy-credit area.
But according to Marks, the real business won’t be done for another couple of years.
When asked about the best time to buy one’s ticket, Marks said: “I think five years might be a little late.”
Here is the full Bloomberg podcast.