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 ?
Distressed debt hedge fund, Archview Investment Group LP (Archview), has announced plans to shut down its operations.
KKR Special Situations Fund II (Europe), distressed debt, $3.
Capital said that Ahmed Hamdani and Duncan Priston have joined the London team of the firm's distressed debt and special situations affiliate, Bayside Capital.
iGlobal Forum announced the 3rd Global Distressed Debt Investing Summit will take place on February 8, 2012 in New York City.
Summary: DUBAI - Cash-strapped creditors of Nakheel are expected to get an unexpected liquidity boon following a move by a Hong Kong-based distressed debt firm to buy off their claims.
A Hong Kong-based distressed debt firm, founded by ex-Deutsche Bank veterans, has approached trade creditors of Dubai-based property firm Nakheel with an aim of taking the claims off their hands, a document seen by Reuters showed.
com), September 21st, 2010, Consulate General of the Republic of Poland in New York City, will cover the most relevant topics for distressed investing practitioners, with panels focused on Distressed Debt, Distressed Financial Assets and Distressed Real Estate Investing:
But it has also created snowballing demand for experts in distressed debt or equity.
The growth of the UK distressed debt market and resultant trend towards restructuring and debt trading could see the end of the traditional large corporate insolvency, according to advisors at accountants Mazars.
AVCJ produces magazines, newsletters, conferences and directories for its target markets, including "Asian Venture Capital Journal," a weekly title that carries information on venture capital activities in the Asia-Pacific region, "M&A Asia," a magazine published 22 times a year to cover Asian acquisitions, mergers and joint venture activities, "Private Equity Asia," a monthly magazine that concentrates on buyouts, growth capital, company investing and distressed debt, and "Chinese AVCJ," published 22 times a year in Simplified Chinese for 10,000 officials, venture capital professionals, entrepreneurs, investment banks and consultants in China's venture community.
Blaylock feels their capabilities will help Blaylock Abacus with credit-sensitive products such as high-yield and distressed debt, which come from defaulting bank loans and bonds.
NEW YORK & LONDON -- Link to Fitch Ratings' Report: Distressed Debt Exchange