Wray Thorn, managing director of private equity at Marathon, moderated the "fireside chat" session titled, "Distressed: The Brave New World," Thursday morning. Richards explained to 135 or so attendees that the market will not be a pleasant time right now for most, but for distressed players, it is a good time.

Richards compared the current cycle to the early 1990s more so that the 2002 cycle for example. He noted that if you tried to characterize the types of companies that were distressed in 2002, they were the "Enron's of the world," adding that it was more about "fraud and bad business models in general." Richards said that "this time around, you will see more good companies with bad balance sheets and bad companies with bad balance sheets, akin to the '90s era."

Richards said that he has about 162 companies on his desk at the moment that will most likely begin to default within the next six months. "There is a shift in the mentality of the buyer until financing will return, which will not be for some time. This is a phenomenal time for distressed played to invest."

As far as the subprime market goes, Richards said that "no one has a crystal ball, but if history is a measure, in Q2 '89, there was a four year down cycle of housing. Q4 '05 is when the down prices of housing started again," adding that "we should see a hit through Q4 '09.

"Things will get worse before they get better," he noted. "Subprime loans and subprime security are good for distressed buyers."

Richards said that by classic definition, "we are not in a recession yet," but he believes that we will be in one in the next quarter or two. "I believe we are in an earnings recession. There is going to need to be new money solutions."

He concluded the 30-minute session saying that the US is one of the great countries if not greatest in the world. "Our culture, society and markets will correct, but between now and then, there is a lot to work out."

Instant Insights /

Distressed Investors See Silver Lining Ahead

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