Next year could be a good one for vulture investors if Wilbur Ross is right. He’s predicting a surge of bankruptcies next year:
Ross, dubbed the ‘King of Bankruptcy’ by Fortune magazine in 1998, said at a conference in London on Wednesday that defaults would rise to about 7 percent of all companies by the end of next year — one of the most bearish predictions in the industry — from about 1 percent now.
"The number of defaults will rise even in the absence of an economic downturn or interest rate increases," said the chairman of WL Ross & Co. LLC in a videoconference from his office in New York. "There will be some tragedies. When you pay higher multiples, you have less margin of error."
The value paid by the average European leverage lender has risen to 8.2 times a company’s earnings before interest, taxes, depreciation and amortization (EBITDA) from 5.2 times five years ago, Ross said.
Leveraged companies are more likely to default in their third or fourth year rather than during the initial years after an investment, and 2007 coincides with the end of the cycle of the 2002-2003 investments, Ross said.
‘King of Bankruptcy’ predicts rise in defaults – Reuters
Tags: Distressed
