distressed debt

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 ?
(Alliance News) - NB Distressed Debt Investment Fund Ltd on Friday reported a drop in net assets for all three of its share classes in the first half as the fund continues to return funds to shareholders as it has come to the end of its investment cycle.
Industrial and Commercial Bank of China (ICBC) and two of China's four largest distressed debt managers will take at least 17.3% in the troubled lender.
Global Banking News-February 4, 2019--Head of distressed debt trading to leave Goldman
M2 EQUITYBITES-February 4, 2019--Head of distressed debt trading to leave Goldman
BANKING AND CREDIT NEWS-February 4, 2019--Head of distressed debt trading to leave Goldman
He has more than 20 years of experience in bank debt sales and trading, specializing in leverage loans and focused on stressed debt, distressed debt, off the run securities, trade claims, litigation and restructured equities.
It does not consider the proposed debt exchange as a distressed debt exchange (DDE), since the offers do not meet both the tests under Fitch's "Distressed Debt Rating Criteria," in order for it to be characterized as a DDE.
New York, NY, November 12, 2016 --(PR.com)-- The Knowledge Group/The Knowledge Congress Live Webcast Series, the leading producer of regulatory focused webcasts, announced today that it has scheduled a live webcast entitled: Distressed Debt Investing in the Oil and Gas Industry: Opportunities and Challenges.
At the time, foreign distressed debt buyers had eyed Amtek bonds, unusual in a country where trading in corporate bonds is mostly confined to top rated issuers.
* Oaktree Opportunities Fund Xb (U.S.), distressed debt, $7 billion
According to Fitch, the exchange constitutes a distressed debt exchange (DDE).
"Returns were mixed among the different strategic indices, with distressed debt hedge funds posting the strongest gains of 1.87 per cent.