Investing in Distressed Debt
Distressed securities may be an attractive investment option for sophisticated investors who are looking for a bargain and are willing to accept some risk. Distressed debt investing combines the best of both worlds — the cash flow of debt investments with the appreciation potential of stocks. While there is no hard and fast rule for what makes a “distressed” investment, it’s generally accepted that distressed debt trades at a huge discount to par value because the borrower is under financial stress and at risk of default. Distressed securities are debt securities; most often corporate bonds, of companies that are in some sort of distress.