Reply #10: More US corporate debt distress ahead, experts say

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http://today.reuters.com/PrinterFriendlyPopup.aspx?type=bondsNews&storyID=uri:2005-12-21T133853Z_01_N21173517_RTRIDST_0_FINANCIAL-DISTRESSED-OUTLOOK.XML

NEW YORK, Dec 21 (Reuters) - Investors in distressed debt appear to have little to celebrate as 2005 draws to a close, with a strong economy keeping defaults low, but market veterans say a new wave of distressed debt supply may not be far away.

An increase in over-indebted balance sheets combined with high costs for everything from oil to steel will push more businesses into financial stress next year even if bankruptcies and defaults remain low, experts in distressed debt said.

"There's a lot of stress in the system in terms of the amount of leverage," said Katalin Kutasi, portfolio manager for distressed debt at Kellner DiLeo Cohen & Co., a New York money management firm.

"If you take the combination of rising interest rates, high energy prices, high commodity prices and high leverage to begin with, I think you've got a fairly big pipeline of product for the distressed market," Kutasi said.

Distressed debt investors specialize in buying bonds of ailing or bankrupt companies, hoping to profit from a turnaround. They typically thrive right after a spike in defaults, when panic selling leaves a plentiful supply of cheap, low-quality bonds.

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