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Feb. 25 (Bloomberg) -- Lead Finance SA, an Athens-based debt restructuring advisory firm, is raising $100 million for a fund to invest in financially distressed companies in Greece.

The fund has attracted five U.S. investors in distressed debt, Haris Stamoulis, chief executive officer of Lead Finance, said in an interview. Stamoulis, formerly an analyst at
Goldman Sachs Group Inc., said Lead Recovery Capital I is the first
restructuring fund targeting Greek companies, he said.

Greek borrowers face a funding shortfall as lenders curb credit and a weak economy raises concern the country may need the European Union’s assistance to avoid missing debt payments. The premium
investors demand to hold Greek 10-year bonds instead of those of
Germany rose to 396 basis points on Jan. 28, the highest in 11 years,
as the government struggles to contain a budget deficit four times the
European Union’s limit of 3 percent of gross domestic product.

“Greek companies, especially the small and medium-sized firms, really need to find alternative funding avenues to get through this sovereign risk crisis,” Stamoulis said. “Banks are
cutting their lending, the stock market is suffering and our government
has a big problem to solve for itself.”

Standard & Poor’s said late yesterday it may lower its BBB+ rating by the end of March and Moody’s Investors Service said today it may reduce its A2 grade in a few months. Greek
air-traffic controllers, customs and tax officials, train drivers,
doctors at state-run hospitals and school teachers walked off the job
to protest spending cuts.

Interest Cover Falls

Greek non-financial companies’ ability to service their debt has deteriorated since 2007. Interest cover fell to less than four times cash flow at the end of June, compared with more than
seven times in 2007 according to a Bank of Greece report in December.

Meanwhile, the nation’s banks are withdrawing loans, with the annual growth of credit to companies at 5.6 percent last year compared with 21.2 percent in 2008, Bank of Greece data show.

“We expect to see more people setting up funds like this to help Greek companies going through restructurings,” Stamoulis said.

Debt becomes distressed when investors think a borrower may fail to make payments on its obligations. Distressed debt managers typically seek to profit by buying assets at below their face
value, providing high-yield financing that could give rights to equity
and opportunities to restructure companies before selling them at a
higher value.

Stamoulis is targeting an annual return of 25 percent for the fund, he said. The country’s ASE Index has gained 23 percent in the past year. Since helping to start Lead Finance in 2004,
Stamoulis has advised companies including a unit of Greek construction
firm Aegek SA on debt restructurings.

Greece’s central government debt totaled 298.5 billion euros ($405 billion) at the end of 2009, according to the Finance Ministry. Greece pledges to trim the shortfall by 4 percentage
points of GDP this year and to bring the country within the EU’s limit
in 2012.