Michel Lowy and Soo Cheon Lee headed Deutsche Bank's Asian distressed products group. Now they've teaming up to launch a new firm, SC Lowy Financial Services.
AsianInvestor met this week with chief executive Michel Lowy in Hong Kong to discuss his strategy for the new business.
The new SC Lowy business will adopt two concurrent strategies. The first is acting as a broker/dealer covering Asia ex-Japan including Australia. The business will be primarily focused on illiquid loans, either in distress or semi-distress, and selectively on bonds.
To this end, they will be talking to 150 commercial banks, all of which have illiquid loans on their books that they might like to shift if the opportunity arose and a buyer materialised.
The SC Lowy 14-strong team includes a quartet of analysts who carry out due diligence on the underlying borrowers. Working in tandem with them is a back office team and an in-house counsel, Jamie Tadelis, who, having cut his teeth as a transaction lawyer in Avenue Partners Capital Group in New York and Hong Kong working on complex restructuring transactions, then migrated to Hong Kong hedge fund Abax Global Capital where he was COO and general counsel, and was a primary contact for both investors and clients.
Although deals will be brokered to other distressed investors and hedge funds, from time to time SC Lowy will be putting its capital to work on some deals. Such deals will be at the more liquid end of the spectrum. It will not try to swallow such deals whole, by reserving them for its own sole consumption, but will instead partner with a small syndicate of other investors.
"You have to work out where you stand in the capital structure, and not just try to value assets," says Michel Lowy. "People tend to focus on the asset side, but as distressed specialists we have to work out who else is sitting around the table, because each of them will have their own agenda about what they want to get out of the negotiation."
He added that a company might be so irredeemably damaged that it cannot be rehabilitated even by a distressed expert; that it has simply been a case of corporate self-destruction.
The exact size of SC Lowy's capital base is confidential but capital fundraising is an ongoing process. At present, the management are the majority shareholders in the enterprise. They desire silent partners, shareholders who are not going to act hands-on in the business, nor will they be privy to all the sensitive information flow being passed hither and thither in the SC Lowy offices.
The second leg of the SC Lowy business will be undertaken in Japan in the near future. There, the plan is to acquire portfolios of non-performing loans and then do the workouts. (In its broker/dealer operations, SC Lowy's team will only perform the workout procedure in deals where its own capital is at stake). Once again, SC Lowy will look to find a small number of investment partners to accomplish this more proprietary activity.
"Distressed prices were attractive entering this year. However, in the last few weeks prices have moved up on the high side," says Michel Lowy, who will be expounding further on those views at the AsianInvestor distressed investing conference being held in Tokyo on November 16 and 17.