If you can’t beat ‘em, buy ‘em?

Credit investors have been eyeing secondary purchases of the new-money portion of liability management exercises that have the senior-most priority repayment rights.

The amount of first-out debt issued by restructured companies is now plentiful enough to make for a sizable portion of an opportunistic credit investing strategy, according to 9fin sources. In some cases, it’s being viewed as the preferable alternative to trying to get involved before an LME in anticipation of a battle with increasingly savvy private equity sponsors.

LMEs tend to result in complex, multi-tiered capital structures, said Steven Purdy, special portfolio manager and head of credit at TCW. “We look at whether the new balance sheet can sustain itself, or is it a prelude to a restructuring. If [the company] passes this test, we go to the top of the capital structure.”