(Bloomberg) — Marathon Asset Management is buying debt issued by troubled developer China Evergrande Group, according to the investment firm’s co-founder and Chief Executive Officer Bruce Richards.
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The distressed-debt specialist purchased Evergrande debt for the first time this week and will continue doing so at the current low prices, Richards said in a Bloomberg Television interview on Wednesday. Evergrande 10% bonds due in 2023 led declines in the U.S. high-yield market on Wednesday, dropping 2.375 cents to 23.875 cents on the dollar.
Evergrande will eventually need to be restructured, although the company may “kick the can” by making some debt payments in the short term, Richards said. Homebuyers, suppliers and Chinese bondholders are going to be paid before offshore investors, he added.
There are “absolutely opportunities” stemming from Evergrande, Richards said during the TV interview with Alix Steel and Guy Johnson. “It is a problem for China, problem for its housing market. A problem for the whole segment that relies on this. There’s a lot of jobs related to this and a lot of commerce related to this.”
The New York-based money manager with about $23 billion in assets and 160 employees globally has investments spread across corporate bonds and loans, structured credit, real estate and emerging markets. Richards and Chief Investment Officer Louis Hanover co-founded the firm in 1998, according to its website.
Federal Reserve Chair Jerome Powell is not “dangerous” and should be renominated for his role, Richards said. Senator Elizabeth Warren this week said Powell is “a dangerous man to head up the Fed.”
Richards said higher labor and input costs will be permanent. Hiring remains an issue, as does a shortage of trucks, although the investor doesn’t expect that to push many companies into default as debt ratios have improved, he said.
“The default rate has dropped below 2%, and what you’re going to see is about 1%. I wouldn’t worry too much at this stage about defaults,” he said.
Marathon continues to like the U.K. hospitality business as tourism recovers, and it has been making more acquisitions in the sector, Richards said.
(Adds Evergrande bond price in second paragraph, additional comments from Richards starting in sixth paragraph)
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