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Distressed securities are
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
over companies or government entities that are experiencing financial or operational distress, default, or are under bankruptcy. As far as debt securities, this is called distressed debt. Purchasing or holding such distressed-debt creates significant risk due to the possibility that bankruptcy may render such securities worthless (zero recovery). The deliberate investment in distressed securities as a strategy while potentially lucrative has a significant level of risk as the securities may become worthless. To do so requires significant levels of resources and expertise to analyze each instrument and assess its position in an issuer's capital structure along with the likelihood of ultimate recovery. Distressed securities tend to trade at substantial discounts to their intrinsic or
par value Par value, in finance and accounting, means stated value or face value. From this come the expressions at par (at the par value), over par (over par value) and under par (under par value). Bonds A bond selling at par is priced at 100% of face valu ...
and are therefore considered to be below investment grade. This usually limits the number of potential investors to large institutional investors—such as hedge funds, private equity firms and investment banks or specialist firms. In 2012,
Edward Altman Edward I. Altman (born June 5, 1941) is a Professor of Finance, Emeritus, at New York University's Stern School of Business. He is best known for the development of the Altman Z-score for predicting bankruptcy which he published in 1968. Profe ...
, a professor emeritus at the NYU Stern School of Business, and an expert on bankruptcy theory, estimated that there were "more than 200 financial institutions investing between $350–400 billion in the distressed debt market in the United States".


History

The market developed for distressed securities as the number of large public companies in financial distress increased in the 1980s and early 1990s. In 1992, professor Edward Altman, who developed the Altman Z-score formula for predicting bankruptcy in 1968, estimated "the market value of the debt securities" of distressed firms as "is approximately $20.5 billion, a $42.6 billion in face value". By 1993 the investment community had become increasingly interested in the potential market for distressed firms' debt. At that time distressed securities "yielded a minimum ten percent over comparable maturity of U.S. Treasury bonds... Adding
private debt In economics, consumer debt is the amount owed by consumers (as opposed to amounts owed by businesses or governments). It includes debts incurred on purchase of goods that are consumable and/or do not appreciate. In macroeconomic terms, it is ...
with public registration rights allows private bank debt and trade claims of defaulted and distressed companies to bring the total book value of defaulted and distressed securities to $284 billion, a market value of $177 billion."


Investment strategy

The distressed securities investment strategy exploits the fact many investors are unable to hold securities that are below investment grade. Some investors have deliberately used distressed debt as an alternative investment, where they buy the debt at a deep discount and aim to realize a high return if the company or country does not go bankrupt or experience defaults. The major buyers of distressed securities are typically large institutional investors, who have access to sophisticated risk management resources such as
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as s ...
s,
private equity firms A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leve ...
and units of
investment bank Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
s. Firms that specialize in investing in distressed debt are often referred to as
vulture fund A vulture fund is a hedge fund, private-equity fund or distressed debt fund, that invests in debt considered to be very weak or in default, known as distressed securities. Investors in the fund profit by buying debt at a discounted price on a ...
s. See . Investors in distressed securities often try to influence the process by which the issuer restructures its debt, narrows its focus, or implements a plan to turn around its operations. Investors may also invest new capital into a distressed company in the form of debt or equity. According to a 2006 report by
Edward Altman Edward I. Altman (born June 5, 1941) is a Professor of Finance, Emeritus, at New York University's Stern School of Business. He is best known for the development of the Altman Z-score for predicting bankruptcy which he published in 1968. Profe ...
, a professor of finance at the
NYU New York University (NYU) is a private research university in New York City. Chartered in 1831 by the New York State Legislature, NYU was founded by a group of New Yorkers led by then-Secretary of the Treasury Albert Gallatin. In 1832, the ...
Stern School of Business, distressed debt investments earned well above average returns in 2006 and there were more than 170 institutional distressed debt investors. These institutions used "very strong and varied strategies including the traditional passive buy-and-hold and arbitrage plays, direct lending to distressed companies, active-control elements, foreign investing, emerging equity purchases and equity plays during the reorganization of a firm in bankruptcy". The most common distressed securities are bonds and bank debt. While there is no precise definition, fixed-income instruments with a
yield to maturity The yield to maturity (YTM), book yield or redemption yield of a bond or other fixed-interest security, such as gilts, is an estimate of the total rate of return anticipated to be earned by an investor who buys a bond at a given market price, h ...
in excess of 1,000
basis point A basis point (often abbreviated as bp, often pronounced as "bip" or "beep") is one hundredth of 1 percentage point. The related term '' permyriad'' means one hundredth of 1 percent. Changes of interest rates are often stated in basis points. If ...
s over the risk-free rate of return (e.g., Treasuries) are commonly thought of as being distressed. Distressed securities often carry ratings of CCC or below from agencies such as Standard & Poor's,
Moody's Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides internationa ...
and Fitch.


Risk management

By 2006, the increased popularity in distressed debt
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as s ...
s led to an increase in the number of benchmark performance indexes. Highly specialized risk analysts and experts in credit are key to the success of alternative investments such as distressed debt investment. They depend on accurate market data from institutions such as CDX High Yield Index and
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
-based Gravitas, which combines risk management software with sophisticated risk analysis using advanced analytics and modeling. They produce customized scenarios that assess the risk impact of market events. Gravitas uses IBM Risk Analytics technology (formerly Algorithmics), which is also used by major banks, to help hedge funds meet regulatory requirements and optimize investment decisions. When companies enter a period of
financial distress Financial distress is a term in corporate finance used to indicate a condition when promises to creditors of a company are broken or honored with difficulty. If financial distress cannot be relieved, it can lead to bankruptcy. Financial distress ...
, the original holders often sell the debt or equity securities of the issuer to a new set of buyers. Private investment partnerships such as
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as s ...
s have been the largest buyers of distressed securities. By 2006, hedge funds have purchased more than 25% of the high-yield market's supply to supplement their more traditional defaulted debt purchases. By 2006, "new issues rated CCC to CCC- were at an all time high of $20.1 billion". Other buyers include
brokerage firm A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confu ...
s,
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV ...
s,
private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a t ...
firms and specialized debt funds such as collateralized loan obligations. The
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
has the most developed market for distressed securities. The international market, especially in
Europe Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a subcontinent of Eurasia and it is located entirel ...
, has become more active in recent years as the amount of leveraged lending has increased, capital standards for banks have become more stringent, the accounting treatment of
non-performing loan A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Non-performing loans represent a major challenge for the banking sector, as it reduces the profitability of banks, and ...
s has been standardized, and
insolvency law In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet inso ...
s have been modernized. Typically, the investors in distressed securities must make an assessment not only of the issuer's ability to improve its operations, but also whether or not the restructuring process (which frequently requires court supervision) will benefit one class of securities more than another.


Sovereign debt

In 2003, Seveq observed that the emergence of the secondary debt market led to a "modern sovereign debt litigation" and the creation of an industry of "professional suers of foreign states". In a 2010 article, Blackman and Mukhi examined a series of litigations employed by distressed funds investors in their lawsuits against defaulted sovereign states. The business plan involved buying the sovereign debt instruments at a deep discount based on a very high risk, and then attempting to enforce the full claim. The strategy is most effective when the sovereign state lacks bankruptcy protection. These investors however are constrained by "the sovereign-immunity rules that national legislatures have enacted and national courts have elaborated" to protect the vulnerable nation states from litigation. While private debtors have the resource of bankruptcy protection, sovereign states do not. There have been "sporadic calls for a bankruptcy analogue for sovereign states" similar to the bankruptcy process for private debtors, however these calls have lacked momentum."When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open, and avowed bankruptcy is always the measure which is both the least dishonourable to the debtor, and least hurtful to the creditor., Adam Smith (1776). According to the African Development Bank Group, at least twenty
heavily indebted poor countries The heavily indebted poor countries (HIPC) are a group of 39 developing countries with high levels of poverty and debt overhang which are eligible for special assistance from the International Monetary Fund (IMF) and the World Bank. The HIPC ...
in Africa have been threatened with or subjected to legal actions by commercial creditors and hedge funds since 1999.


Zambia

In 1999, the US firm Donegal International purchased $40 million of
Zambia Zambia (), officially the Republic of Zambia, is a landlocked country at the crossroads of Central, Southern and East Africa, although it is typically referred to as being in Southern Africa at its most central point. Its neighbours are t ...
n debt owed to
Romania Romania ( ; ro, România ) is a country located at the crossroads of Central, Eastern, and Southeastern Europe. It borders Bulgaria to the south, Ukraine to the north, Hungary to the west, Serbia to the southwest, Moldova to the east, and ...
for the "discounted purchase price" of $3.2 million. In 2007, a British high court granted the company "permission to enforce a claim for tens of millions of dollars against the Government of Zambia".


Liberia

In 2009, a British court awarded $20 million to hedge funds suing Liberia. Before the hedge funds could collect their money, the Debt Relief (Developing Countries) Act 2010 was passed in the
UK parliament The Parliament of the United Kingdom is the supreme legislative body of the United Kingdom, the Crown Dependencies and the British Overseas Territories. It meets at the Palace of Westminster, London. It alone possesses legislative suprema ...
in 2010 after Liberian president and 2011
Nobel Peace Prize The Nobel Peace Prize is one of the five Nobel Prizes established by the will of Swedish industrialist, inventor and armaments (military weapons and equipment) manufacturer Alfred Nobel, along with the prizes in Chemistry, Physics, Physiolog ...
winner
Ellen Johnson Sirleaf Ellen Johnson Sirleaf (born Ellen Eugenia Johnson, 29 October 1938) is a Liberian politician who served as the 24th president of Liberia from 2006 to 2018. Sirleaf was the first elected female head of state in Africa. Sirleaf was born in Monro ...
appeared on the BBC ''
Newsnight ''Newsnight'' (or ''BBC Newsnight'') is BBC Two's news and current affairs programme, providing in-depth investigation and analysis of the stories behind the day's headlines. The programme is broadcast on weekdays at 22:30. and is also availa ...
'' program for the hedge funds to "have a conscience and give this country a break". That act caps what the hedge funds can collect, they had to settle with Liberia for just over $1 million, and effectively prevents them suing for exorbitant amounts of money in United Kingdom courts. Nick Dearden of the
Jubilee Debt Campaign Debt Justice (formerly Jubilee Debt Campaign, Jubilee Debt Coalition and Drop The Debt) is a UK-based campaigning organisation that exists to end unjust developing countries' debt and the poverty and inequality it perpetuates. The organisation’s ...
said of the change, "It will mean the poorest countries in the world can no longer be attacked by these reprehensible investment funds who grow fat from the misery of others". The law was made permanent in 2011 but there are still havens for this activity, such as the
Channel Islands The Channel Islands ( nrf, Îles d'la Manche; french: îles Anglo-Normandes or ''îles de la Manche'') are an archipelago in the English Channel, off the French coast of Normandy. They include two Crown Dependencies: the Bailiwick of Jersey, ...
and the
British Virgin Islands ) , anthem = "God Save the King" , song_type = Territorial song , song = " Oh, Beautiful Virgin Islands" , image_map = File:British Virgin Islands on the globe (Americas centered).svg , map_caption = , mapsize = 290px , image_map2 = Bri ...
.


Congo

FG Hemisphere of Brooklyn, sued
Democratic Republic of the Congo The Democratic Republic of the Congo (french: République démocratique du Congo (RDC), colloquially "La RDC" ), informally Congo-Kinshasa, DR Congo, the DRC, the DROC, or the Congo, and formerly and also colloquially Zaire, is a country in ...
for a debt from
Yugoslavia Yugoslavia (; sh-Latn-Cyrl, separator=" / ", Jugoslavija, Југославија ; sl, Jugoslavija ; mk, Југославија ;; rup, Iugoslavia; hu, Jugoszlávia; rue, label=Pannonian Rusyn, Югославия, translit=Juhoslavija ...
in the 1970s, which it had picked up for $3.3 million. FG sued in
Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delta i ...
, Australia, and
Jersey Jersey ( , ; nrf, Jèrri, label= Jèrriais ), officially the Bailiwick of Jersey (french: Bailliage de Jersey, links=no; Jèrriais: ), is an island country and self-governing Crown Dependency near the coast of north-west France. It is the l ...
, which was not covered by the
UK law The United Kingdom has four legal systems, each of which derives from a particular geographical area for a variety of historical reasons: English and Welsh law, Scots law, Northern Ireland law, and, since 2007, purely Welsh law (as a result o ...
against hedge funds involved in sovereign debt. The
Chinese government The Government of the People's Republic of China () is an authoritarian political system in the People's Republic of China under the exclusive political leadership of the Chinese Communist Party (CCP). It consists of legislative, executive, m ...
blocked the attempt to sue in Hong Kong but the Jersey court awarded $100 million to FG. A series of attempts were then made in Britain and the United States by organizations such as Jubilee USA Network, Oxfam and the Jubilee Debt Campaign to change the laws so that hedge funds would not be able to collect on their awards. The
Jubilee Debt Coalition Debt Justice (formerly Jubilee Debt Campaign, Jubilee Debt Coalition and Drop The Debt) is a UK-based campaigning organisation that exists to end unjust developing countries' debt and the poverty and inequality it perpetuates. The organisation’s ...
's Tim Jones traveled to Jersey in November 2011 to ask the government to ban hedge funds involved in sovereign debt. He told ''
The Guardian ''The Guardian'' is a British daily newspaper. It was founded in 1821 as ''The Manchester Guardian'', and changed its name in 1959. Along with its sister papers ''The Observer'' and ''The Guardian Weekly'', ''The Guardian'' is part of the Gu ...
'' that the Democratic Republic of the Congo "desperately needs to be able to use its rich resources to alleviate poverty, not squander them on paying unjust debts". When FG's owner Peter Grossman was doorstepped by freelance reporter
Greg Palast Gregory Allyn Palast (born June 26, 1952) is an author and a freelance journalist who often worked for the BBC and ''The Guardian''. His work frequently focuses on corporate malfeasance but he has also worked with labour unions and consumer adv ...
and asked whether he thought it was fair to take $100 million for a debt he had paid $3 million for, he responded, "Yeah I do actually…I'm not beating up the Congo. I'm collecting on a legitimate claim". FG Hemisphere is attempting to enforce an ICC arbitration award for $116 million owed by the
Democratic Republic of the Congo The Democratic Republic of the Congo (french: République démocratique du Congo (RDC), colloquially "La RDC" ), informally Congo-Kinshasa, DR Congo, the DRC, the DROC, or the Congo, and formerly and also colloquially Zaire, is a country in ...
. The award was originally issued by an arbitral panel of the
International Chamber of Commerce The International Chamber of Commerce (ICC; French: ''Chambre de commerce internationale'') is the largest, most representative business organization in the world. Its over 45 million members in over 100 countries have interests spanning every sec ...
(ICC) in favor of
Energoinvest Energoinvest (full name: Energoinvest, d.d. - Sarajevo) is a multidisciplinary engineering and energy company with headquarters in Sarajevo, Bosnia and Herzegovina. History Energoinvest was established as a small design office under the name of ...
DD of Bosnia in the amount of $39 million and then sold to FG Hemisphere. The award had been issued by the ICC in respect of unpaid construction contracts pursuant to which Energoinvest supervised construction of high-tension power lines, which are still in service, for transmission of power from the Inga–Shaba dam in the Congo—then known as
Zaire Zaire (, ), officially the Republic of Zaire (french: République du Zaïre, link=no, ), was a Congolese state from 1971 to 1997 in Central Africa that was previously and is now again known as the Democratic Republic of the Congo. Zaire was, ...
. The chief of Bosnia's financial police said, "Of course it was illegal", referring to Energoinvest's sale of assets to FG Hemisphere, noting that the man who brokered the sale, former Bosnian Prime Minister Nedzad Brankovic, "should go to jail".


Peru

In 1983,
Peru , image_flag = Flag of Peru.svg , image_coat = Escudo nacional del Perú.svg , other_symbol = Great Seal of the State , other_symbol_type = National seal , national_motto = "Firm and Happy f ...
was in economic distress and had large amounts of external debt. In 1996, the nation restructured its debts. The original loans were exchanged for
Brady Bonds Brady bonds are dollar-denominated bonds, issued mostly by Latin American countries in the late 1980s. The bonds were named after U.S. Treasury Secretary Nicholas Brady, who proposed a novel debt-reduction agreement for developing countries. ...
, dollar-denominated bonds issued in the original amount of the loans. Paul Singer's Elliott Associates, a New York-based hedge fund, purchased $20.7 million worth of defaulted loans made to Peru for a discounted price of $11.4 million. Elliott Associates, holding the only portion of Peru's debt remaining outside the restructure, sued Peru and won a $58 million settlement. Unable to pay the $58 million, Peru, continued to repay creditors that held Brady Bonds. Elliott filed an injunction to prevent Peru from paying off its restructured debt without also paying Elliott. It was argued that Peru violated the "
pari passu ''Pari passu'' is a Latin phrase that literally means "with an equal step" or "on equal footing". It is sometimes translated as "ranking equally", "hand-in-hand", "with equal force", or "moving together", and by extension, "fairly", "without pa ...
" clause, which states that no creditor can be given preferential treatment.


Argentina

In 2001,
Argentina Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the second-largest country in South America after Brazil, th ...
defaulted on roughly $81 billion. NML Capital, LTD., a hedge fund that is a subsidiary of
Elliott Management Corporation Elliott Investment Management is an American investment management firm. It is also one of the largest activist funds in the world. It is the management affiliate of American hedge funds Elliott Associates L.P. and Elliott International Limit ...
, purchased Argentine debt on a secondary market for a lower price. Ninety-two percent of creditors restructured in 2005 and 2010 for roughly $0.30 on the dollar. NML Capital rejected the proposal and sued Argentina for the full amount in New York State courts. NML Capital's main argument is that the "
pari passu ''Pari passu'' is a Latin phrase that literally means "with an equal step" or "on equal footing". It is sometimes translated as "ranking equally", "hand-in-hand", "with equal force", or "moving together", and by extension, "fairly", "without pa ...
"—
Latin Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through the power of the ...
for "on equal footing"—clause in the original contract requires Argentina to pay back all of its creditors, including those who did not agree to restructure, if it paid back one creditor. Since Argentina had already begun to repay the creditors that restructured, Elliot argued that it also deserved to be paid back. On October 2, 2012, NML Capital Ltd., a hedge fund based in the Cayman Islands, which held Argentine debt not included in
Argentine debt restructuring The Argentine debt restructuring is a process of debt restructuring by Argentina that began on January 14, 2005, and allowed it to resume payment on 76% of the US$82 billion in sovereign bonds that defaulted in 2001 at the depth of the worst e ...
,010 010 may refer to: * 10 (number) * 8 (number) in octal numeral notation * Motorola 68010, a microprocessor released by Motorola in 1982 * 010, the telephone area code of Beijing * 010, the Rotterdam Rotterdam ( , , , lit. ''The Dam on the R ...
EWCA Civ 41"> impounded the '' Libertad'', an Argentine Navy training ship in
Tema Tema is a city on the Bight of Benin and Atlantic coast of Ghana. It is located east of the capital city; Accra, in the region of Greater Accra, and is the capital of the Tema Metropolitan District. As of 2013, Tema is the eleventh most populo ...
,
Ghana Ghana (; tw, Gaana, ee, Gana), officially the Republic of Ghana, is a country in West Africa. It abuts the Gulf of Guinea and the Atlantic Ocean to the south, sharing borders with Ivory Coast in the west, Burkina Faso in the north, and To ...
. The Ghanaian court held that Argentina had waived sovereign immunity when it contracted the
sovereign debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit o ...
being enforced. In November 2012, the New York State Court ruled in favor of Elliot and the other holdouts on the merits of the ''pari passu'' argument, and ordered Argentina to pay $1.3 billion on December 15—the very same date that Argentina was supposed to pay the creditors who had agreed to the restructure. An appeals court heard oral arguments on February 27, and in June 2014, the
U.S. Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...
rejected Argentina's appeal."Argentina makes debt case in US newspapers"
AFP wire, June 23, 2014
The Center for Economic and Policy Research reported on an Organization of American States special meeting on July 3, 2014, among foreign ministry officials, in
Washington, D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument and Lincoln Memorial on the National Mall, United States Capitol, Logan Circle, Jefferson Memorial, White House, Adams Morgan, ...
, to discuss the situation. The resolution was passed with the support of all OAS member states other than the United States and Canada.Main, Alexander
"U.S. on Its Own, Once Again, at OAS Meeting on Argentinean Sovereign Debt"
, CEPR website, July 9, 2014
In July 2014, a U.S. federal judge ruled in favor of NML Capital Ltd., a unit of Michael Sheehan's Elliott Management, against
Argentina Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the second-largest country in South America after Brazil, th ...
. The country owes its creditors more than $1.3 billion. According to Mark Weidemaier, a law professor at the
University of North Carolina The University of North Carolina is the multi-campus public university system for the state of North Carolina. Overseeing the state's 16 public universities and the NC School of Science and Mathematics, it is commonly referred to as the UNC Sy ...
, the ruling was one of "the most significant litigation victories that a holdout creditor has ever achieved" in the realm of sovereign debt. A July 2014 article in ''
The Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' by Georgetown Law professor Adam J. Levitin argued that the relationship between distressed securities investors and the U.S. court system should be revisited. He claimed that while these distressed debt
investment funds An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...
can choose to "play the game" and "put their head in the mouth of the
Leviathan Leviathan (; he, לִוְיָתָן, ) is a sea serpent noted in theology and mythology. It is referenced in several books of the Hebrew Bible, including Psalms, the Book of Job, the Book of Isaiah, the Book of Amos, and, according to some ...
", the U.S. courts should not choose to.


See also

* Business valuation#Option pricing approaches *
Credit risk A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...
* Default (finance) *
High-yield debt In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a Bond (finance), bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default (finance), defau ...
*
Private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a t ...
*
Special situation A special situation in finance is an atypical event which has the high potential to alter the future course of a business, materially impacting the company's value. The connotation of the event may be both positive (for example, merger or acquisitio ...
*
Traditional investments In finance, the notion of traditional investments refers to putting money into well-known assets (such as bonds, cash, real estate, and equity shares) with the expectation of capital appreciation, dividends, and interest earnings. Traditional in ...
*
Vulture fund A vulture fund is a hedge fund, private-equity fund or distressed debt fund, that invests in debt considered to be very weak or in default, known as distressed securities. Investors in the fund profit by buying debt at a discounted price on a ...


Notes


Citations


References

* This report was the basis so Altman's 1991 publication entitled ''Distressed Securities.'' * Altman was commissioned by The Foothill Group to prepare a series of "White Papers" on Distressed Debt Markets in 1990 and 1992. * * * * * * * * * * This article investigated the role of vulture investors in a sample of 288 US firms that defaulted on their public debt from 1980-1993. * * * * * * * * * * * * * * *


Further reading

* * * * *


External links


Understanding Distressed Securities

Distressed Debt Articles
from VCExperts.com {{hedge funds Fixed-income securities Debt