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Is there light at the end of the debt market tunnel?

News that US banking giant Goldman Sachs will be investing a significant chunk of its $20.3 billion private equity fund into distressed debt situations could be a sign that the commercial debt market is starting to turn. The company still has $9 billion to invest from the fund and those close to the situation believe around $4.5 billion will be invested directly into company debt, increasing the weighting of the fund from 10% to 25%.

Goldman Sachs is the latest in a long line of banking giants to look towards the debt market where debts are exchanging hands at significant discounts to their face value in the face of a steep worldwide recession. The more traditional markets of leveraged buyouts have literally ground to a halt over the last few months but many believe there is significant value in the debt market as a number of situations appear overdone. Whether this will be a quick turnaround for private equity funds or more of a medium to longer term investment remains to be seen but value appears to be emerging from the ashes of the worldwide economy.

Private equity funds have taken a real battering last six months with the likes of 3I suffering badly and losing its place in the FTSE 100 index. Many highly leveraged deals, which took on significant debt, have fallen by the wayside as business levels recede, income streams are reduced and the ability of companies to repay their debt evaporates.

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