Tide turns for 'distressed' debt specialists

NEW YORK — The recent credit crunch and ensuing economic clouds have depressed a lot of people on Wall Street.

But not Wendy Landon.

An investor in "distressed" debt for a Boston investment firm, Landon makes money on companies that fall into trouble.

Since the credit crisis struck this summer, Landon has been scooping up bargain-priced bonds of faltering companies. Her firm, GB Merchant Partners, profits if the borrowers' plight improves and they get back on track to pay off their debts in full.

Landon isn't alone in her enthusiasm for the financial markets' downturn.

She is part of a larger community of restructuring specialists, bankruptcy lawyers and others who profit in the wake of others' misfortune, but who themselves have suffered in recent years as a strong economy and free-flowing credit propped up companies that might otherwise have fallen on hard times.

"We are entering what should be a good time for distressed investing," Landon said. "I've been waiting a really long time."

The so-called vulture community prospered after the collapse of the Internet and telecommunications booms around 2002.

But the last few years were relatively fallow -- a fact that buyers of beaten-down debt blame on the easy-money era that appears to have ended this summer.

While the good times rolled, troubled companies could easily refinance their debt or raise new cash, forestalling at least temporarily any real financial pain.

"Over the last several years, there have been companies that have been able to stay out of bankruptcy that I've been amazed that they could do that," said Brad Erens, a bankruptcy partner in the Chicago office of law firm Jones Day. "In more normal times, they would have filed [for bankruptcy protection] a couple of years ago."

That made it tough for distressed-debt firms such as Denver-based Summit Investment Management, which had to branch into other investment areas three years ago as companies in financial trouble became hard to find.

"The big home runs you get when you buy distressed debt and play it right just weren't as frequent," said Frank Grimaldi, head of Summit's New York office. "It was frustrating."

Now, however, the implosion of the sub-prime mortgage market and the resulting credit crunch are changing all that.