HSBC to expand distressed debt fund

By Kristina Cooke and Siobhan Kennedy

LONDON (Reuters) - HSBC, the world's third biggest bank, plans to increase its distressed debt fund by up to one billion dollars within the next year, one of its top executives said on Wednesday.

Bill Maldonado, chief executive, Alternative Investments, HSBC Halbis Partners, said HSBC already had about $150 million invested in distressed assets, but there was a big opportunity to grow that over the next year to 18 months as companies, overloaded with debt, begin to default on payments.

Alternative Investments, HSBC Halbis Partners is a unit of HSBC with about $75 billion of assets under management.

"Everybody thinks that the story's over for distressed debt. We don't think so," he said at the Reuters Hedge Funds and Private Equity Summit in London.

"What we see is a lot of supply coming into our market."

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

But the question is when this spike will come and by how much the default rate will rise.

During a typical life cycle of the market, a credit boom is followed two to three years later by a wave of defaults. So far default rates have remained low.  Continued...