Providing fresh capital to companies restructuring their debt has been “the best opportunity in the corporate credit market over the last year or two”, according to Sculptor Capital Management’s chief investment officer Jimmy Levin.

Liability management exercises, where companies get controversial financings that prioritise newer creditors over their existing ones, have become more common over the last decade. To Levin, who’s also Sculptor’s executive managing partner, it’s “just capitalism at work”.

“The job of the credit investor is to make sure you can see around that corner to avoid being on the wrong side and hopefully be on the right side,” he said in an interview with Bloomberg Intelligence’s Credit Edge podcast.

Borrowers exploiting loopholes in agreements to raise new financing, at the expense of a group of existing lenders, often pits one set of investors against another. That’s leading to more so-called “creditor-on-creditor violence”.

A response to those debt maneuvers has been cooperation agreements, which creditors sign to ensure that borrowers aren’t able to reach a deal with one group of creditors while lumbering others with losses. Those agreements are just the “ping-ponging of capitalism”, Levin said.

Asset-based finance is another area of opportunity for investors, Levin said, defining it as all types of credit risk that aren’t corporate credit or single-name real estate credit.

Because it’s a wholesale-funded market, the opportunities arise not just from cyclical shocks like higher rates, or more secular trends like banking regulation, but also because it’s less efficient.

“It’s a market that’s nowhere near as mature as the corporate credit market,” he said. “And so, the opportunity comes by waiting for what falls through the cracks.”

  - Bloomberg