(Bloomberg) -- Private equity firms exploiting weak lending agreements to raise new money for struggling portfolio companies are wise to do so, Marathon Asset Management Chief Executive Officer Bruce Richards said on Bloomberg Television Monday.

Bankruptcy is a costly process that private equity firms are increasingly delaying — and in the most successful cases, avoiding entirely — with the use of financing maneuvers known as liability management exercises. The deals give struggling companies fresh cash at the expense of some existing creditors. 

The maneuvers — a frequent source of frustration for investors in risky debt — are better than putting a company in bankruptcy because they give enterprises a chance to grow into their new debt loads, Richards said. Marathon is among a slew of opportunistic credit investors willing to lend into such situations, he said.

“It’s much better to extract a pound of flesh from the creditors,” Richards said. “And with 90% of the broadly syndicated loan market being covenant lite they can do that quite efficiently” by shuffling assets into new legal entities and borrowing against them, he said. 

The amount of distressed debt owed by portfolio companies of the world’s 50 biggest PE firms climbed 18% since mid-March to $42.7 billion, Bloomberg reported last week.

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