Distressed-debt investors are preparing to pounce

are used to being the star players in corporate America’s most aggressive sport: financial distress. They search for value in the liabilities of troubled firms, often hoping to participate in the restructuring of a company’s balance-sheet. And after a decade of unpleasantly benign financial conditions, excitement in the industry is building. A toxic cocktail of rising interest rates, slowing growth and high inflation is already creating pockets of distress. High-yield debt issuance has dried up (see chart), and it is increasingly difficult for companies to refinance their liabilities or raise fresh funds. In July the amount of distressed debt, which includes bonds yielding more than ten percentage points over Treasuries and loans trading at heavy discounts, surpassed $240bn, nearly three times as much as at the start of May.