distressed debt


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Distressed Debt

A debt security in an unprofitable company that is likely to go bankrupt. This is considered to be a high-risk security with the potential for high return because financial distress often precedes corporate restructuring, which could keep the company from bankruptcy, or at least liquidation, enabling the security to be repaid in full. On the other hand, the potential for default is very high. Distressed debt usually sells for a very small percentage of its par value.

distressed debt

Debt with low junk status and a market price substantially below par value, often pennies on the dollar. Investors sometimes buy distressed debt on the possibility that management can renegotiate loan agreements and keep the issuer out of bankruptcy. Alternatively, distressed debt may offer potential value in the event the issuer is liquidated.
Case Study In December 2001 communications network services company Global Crossing, Ltd., was on the ropes. With reports of shrinking liquidity and an increased likelihood of seeking bankruptcy protection, the firm's stock dropped to under a dollar a share in trading on the New York Stock Exchange. At the same time its distressed 8.7% notes with 2007 maturity were bid at 7¢ on the dollar. At this price the notes provided buyers with a yield to maturity of nearly 100%. Three months earlier the same debt traded for over 50¢ on the dollar. The debt sold at such a low price because of the company's poor operating results and lack of cash, and also because investors believed the firm's telecom assets would bring little in liquidation.
References in periodicals archive ?
Bank of America Corp's (NYSE: BAC) head of distressed debt has quit the company.
Fritsch was a Senior Vice President at Deutsche Bank's OMNIS in London, serving as a distressed debt trader.
HRC focuses on distressed debt and preferred equity as well as complex bridge and mezzanine loan situations.
Currently pending before the Georgia Legislature, the bill is intended to limit the amount that a purchaser of distressed debt can recover from a guarantor of that debt.
Kaplan joined LLCP as a director in 2010, bringing extensive expertise in analyzing distressed debt investments and executing restructuring transactions as a former partner at Wolf Point Capital and Vice President at PPM America.
Strategic Research Institute inaugurates its premier European Distressed Debt Summit, September 21-22 in Frankfurt.
The rating actions reflect Fitch's view that the debt exchange of certain of Cemat's financial obligations, including its 2nd and 4th local debentures issuances, are distressed debt exchanges under Fitch's 'Distressed Debt Exchange Criteria', published Aug.
Global Banking News-March 23, 2012--Nomura hires head for bond, loan and distressed debt sale(C)2012 ENPublishing - http://www.
5 billion notional of distressed debt issued by more than 70 bankrupt or otherwise distressed financial holding companies whose subsidiaries are in various stages of deep insolvency, including most of the largest 25 bank failures of the recent cycle.
An extra hurdle for distressed debt investors is inheriting someone else's loan documents.
Carlton Strategic Ventures, the principal transaction group of The Carlton Group, real estate investment bank, has just added six distressed debt professionals to its investment team.
Bansal joins the firm from Citigroup, where he spent four years and was a Managing Director and Head of Distressed Debt Trading.