FUND VIEW-Distressed debt opportunities greatest in 20 years

By Claire Milhench

LONDON, Jan 15 (Reuters) - Ailing retailers and debt-ridden resource companies hurt by falling commodity prices offer strong investment opportunities, a fund manager planning to invest an initial $500 million in distressed debt told Reuters.

Mark Devonshire, a former co-head of the proprietary trading desk at Merrill Lynch, said his new fund aims to make 30 to 40 investments, each at about $25 million to $50 million, with a holding period of around two and a half years.

"This is longer than our usual holding period, because we think this recession has real teeth," he said.

Debt prices for 200 companies in Europe and Asia are already trading at low levels, Devonshire said, with 40 of them so cheap they could be categorised as distressed.

"This is only the beginning of the distressed cycle. We will see a lot more distressed debt created in 2009," he added.

Devonshire, who has now left Merrill Lynch, aims to launch mCapital in February. He has not started investing yet and refused to reveal specific investment targets, but said that his team plans to focus on senior parts of the capital structure to ensure some protection.

While the global banking collapse has affected all parts of the economy certain sectors will be harder hit than others and are therefore likely to provide more opportunities.

"Resources looks very over-leveraged with the collapse of the oil price. There are some companies out there that can support those levels of leverage and others that were pipe dreams," he said.