Scott Klein, Managing Partner of Beach Point Capital Management, recently completed a compelling presentation entitled Opportunities in Stressed and Distressed Credit. The following are our notes:
About Beach Point Capital
- Specializes in high yield bonds, corporate loans, distressed debt and other credit related strategies.
- The firm has over $3.7 billion in AUM.
- Investment team includes 15 people with offices in Los Angeles and New York.
The Opportunity in Distressed Investing
- The distressed debt market is currently presenting an “opportunity of a generation.” The key in distressed debt is the ability to analyze legal documents and bond covenants.
- The high yield market is currently yielding 16%-18%. Distressed debt can offer investors better downside protection than many equities.
- On the high yield side, Klein sees companies with mid teens yields that are attractive. Example: Dole Foods. The company missed a window of opportunity to refinance some of its debt. This particular example is yielding 16% and the downside is par (very safe, high yielding piece of paper).
- The high-yield default rate is increasing (about 10%-12%)—default rates are a lagging indicator.
- One of their largest distressed holdings is called Digital Globe. They are a content provider for Google Earth (satellite imagery). They filed for bankruptcy after a failed satellite launch. In this situation, Beach Point turned its private debt into equity and the company recently filed an S-1 and should go public soon.
- The high yield market has gained 35% on average during the two years following a monthly decline of 5% or more.
About Scott Klein
Scott Klein is Managing Partner and Portfolio Manager for Beach Point Capital Management with $3 billion under management. He has over 17 years of experience in managing high yield bonds, bank loans and distressed debt portfolios and restructuring companies in financial distress. Before founding Beach Point, Mr. Klein was Senior Managing Director at Post Advisory Group, where he spent over 12 years helping grow the company from under $200 million in assets to over $10 billion. In the early 1990s, he spent four years as a bankruptcy attorney at the law firm of Murphy, Weir and Butler. Mr. Klein received a bachelor's from Wharton (magna cum laude) and a J.D. from UCLA.
Disclosure: No postions.