FrontPoint Partners is marketing a distressed debt fund that will focus exclusively on debt in Canada.Philip Duff, partner and chairman, said the fund has no interest in the U.S. market and is instead looking to fish out some distressed gems among the $100-200 billion in distressed assets north of the border. "It's very rare that you see a dedicated pool of capital [and] investment strategy that's exclusively focused on Canada," he conceded. But he affirmed that the fund was not "about to go fishing in a pond where there aren't any fish."
FrontPoint completed its first initial closing for the Canadian distressed debt strategy in September and is presently marketing it to gain more investors, Duff said. The strategy was added last May and focuses on buying the senior, and in most cases secured, securities of distressed middle-market companies and restructuring them.
Duff explained that since 1989, when pension plans began to become distinct separate entities in Canada and were no longer just a part of the government, they became the biggest buyers of distressed debt. But these organizations do not have established work-out groups and now need firms like FrontPoint to help work through the process, he stated. Duff added that the Canadian market must deal with both the Canadian and U.S. bankruptcy laws and it is still a new practice for most Canadian players. The Canadian bankruptcy rulebook is only seven pages long, he noted. Ultimately, the lack of capital and experience in the complex work-out process led FrontPoint to realize the fund's demand in Canada, Duff said.
Duff said FrontPoint takes an active approach to its investing, looking for more control and influence over the restructuring plans of distressed companies, he explained. When investors take a seat at the creditor's committee table, the results are generally better in terms of operations and the balance sheet, Duff noted. He contrasted that approach to passive investment in distressed securities, when players just say, "Hey, this credit's cheap," and buy into it.
Newton Glassman, former managing director of Cerberus Capital Management, and Brian Budden, formerly a bankruptcy lawyer for Fasken Martineau Du Moulin in Toronto, lead the Canada-based distressed securities team with two others that Duff cared not to state. FrontPoint had planned to launch a domestic distressed debt fund in Nov. 2001, headed by Jeff Maillet from Nuveen Investments. However, Maillet and the team were no longer at FrontPoint as of last February, Duff stated, adding that the fund was discontinued as well. He would not comment on the fund or the team's departure, only noting that he does not know Maillet's present whereabouts.