3 degrees plans purchases in australia...

Source: www.bloomberg.com

3 Degrees Plans Purchases in Australia as Centro, Allco Falter
By Netty Ismail

June 11 (Bloomberg) -- 3 Degrees Asset Management Pte, the Singapore-based hedge fund focusing on distressed debt, said it's preparing to scoop up assets in Australia as companies such as Centro Properties Group struggle to refinance loans.

3 Degrees, which oversees an Asian debt fund with $400 million of assets, may buy leveraged buyout loans that trade at a discount, said Jeffrey Tolk, a principal at the firm. The fund is also seeking companies that ``took on too much leverage'' and are at risk of default, he said.

``There will probably be some defaults in the next year or so on some of those companies, so we're watching for those,'' said Tolk, who has more than 18 years of structured credit and legal experience, including a stint at Moody's Investors Service as a senior credit officer.

Centro, Allco Finance Group Ltd. and ABC Learning Centres Ltd., all of which expanded overseas with debt, are among the Australian companies that plunged in value because of the global credit crunch. There are ``many lesser known names whose debt also trades at a substantial discount,'' Tolk said in an interview last week, declining to be more specific.

Companies with high-yield, high-risk debt defaulted at an annual rate of 2 percent worldwide in May, compared with 1.7 percent in April, the sixth consecutive month of increases, according to New York-based Moody's Investors Service. The rate may climb to 5 percent by the end of 2008, Moody's said.

The defaults follow more than $390 billion of writedowns and credit market losses linked to the collapse of the U.S. subprime mortgage market, according to data compiled by Bloomberg. Rising energy prices and borrowing costs also are contributing to financial stress on companies.

Credit Crunch

Distressed debt is defined as securities that trade at yields of at least 10 percentage points above U.S. Treasuries because investors believe the companies may default on their obligations. Standard Chartered Plc, the U.K. bank that makes most of its money in Asia, announced plans earlier this month to increase its distressed debt business in the region.

3 Degrees is focused on Australia, where it expects default rates to increase. Banks such as Australia & New Zealand Banking Group Ltd. are having to set aside additional funds for potential losses as companies struggle to repay their debt. Australian banks raised interest rates faster than the central bank this year to counter the increase in funding costs.

``With the slowdown and the credit crunch, these companies will have difficulty rolling their funding,'' Tolk said.

`The Cycle'

Centro, the Melbourne-based owner of more than 650 U.S. malls, reached agreements confirming extensions on as much as A$6.6 billion ($6.3 billion) of debt as it works to sell assets. Allco's bankers forced the Sydney-based asset manager to triple the yield margin on A$250 million of debt at the end of May in exchange for a one-month extension on repayment.

Brisbane-based ABC Learning, the world's biggest publicly traded owner of child-care centers, agreed in April to sell 60 percent of its U.S.-based Learning Care Group Inc. to Morgan Stanley and will use funds raised from the transaction to pay A$485 million in debt.

``It is a little early in the cycle,'' Tolk said. ``We already have some positions in Australia, and we're looking to add to those for the right opportunities.''


Ends.

Cheers, Pie :)