Mellon Financial Corp. subsidiary Mellon HBV Alternative Strategies has added a long-only distressed investment discipline. The fund will aim to acquire influential or controlling positions in various securities of distressed public companies, targeting the general industrial, manufacturing, services, tech, telecom and retailing sectors, according to James Jenkins, managing director and distressed portfolio manager at Mellon HBV. The fund will target bank debt or bonds trading at significant discounts and will seek to actively participate in the restructuring process of these companies, a spokesman said. He declined to comment on the size of the fund.
Ronald O'Hanley, Mellon vice chairman and president of its institutional asset management group, in a statement said, "We are seeing growing opportunities in this area as the overall size of the distressed debt market has tripled in the last three years." However, Edward Altman, Max L. Heine Professor of Finance at the Stern School of Business, New York University, recently said that total U.S. distressed and defaulted dollars fell by about 19% to $760 billion (face value) and just under $400 billion (market value) in the first six months of the year. A reported increase of funds flowing into distressed debt investors has reduced the enormous supply and demand imbalance, Altman added.
But Jenkins countered that there is still opportunity. "The distressed market moves in long cycles," he stated. "The middle-market names [that the fund is targeting] are still providing good opportunities and are expected to continue to do so for a while," he argued. An eight-member investment team co-led by Jenkins and George Konomos will manage the new product.