Over the past six months, distressed-debt investors have been waiting for a tidal wave of bad debt to wash their way. But the surge, which was supposed to have started this year and swell to $1 trillion in the next four years, has yet to appear. Its absence has left many firms that started distressed funds last year — including Alvarez & Marsal, Cerberus Capital Management, Citadel Investment Group, GLG Partners, Oak Hill Advisors and Sankaty Advisors — waiting like stranded surfers.

Much of this wave will be fueled by massive amounts of high-yield debt that can no longer be amended and extended. Legions of highly leveraged companies have put off doomsday by rolling out maturities, thanks to strong equity markets and low interest rates. “Many people have raised capital with one sole mandate, which is to invest in distressed,” says Peter Lupoff, founder of New York–based Tiburon Capital Management, which invests in distressed debt as one of three strategies. “These funds are forced to spend money at exactly the wrong time, because they’ve got an extremely narrow focus.” ....

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