Distressed Investing

Distressed investing acquires claims on companies experiencing financial stress — approaching or already in default or bankruptcy — at prices that discount the possibility of failure.

Returns come from correctly assessing recovery value where the market has assumed the worst, and from the mechanics of restructuring rather than from operating growth.

• Analyse the capital structure to identify the fulcrum security
• Buy debt at a discount, sometimes converting to equity in restructuring
• Take active roles in creditor committees and negotiations
• Assess liquidation value as a downside floor
• Deep legal and bankruptcy process expertise

Founders rarely engage distressed investors by choice, but understanding the capital structure matters enormously if a company approaches difficulty.

Whoever holds the fulcrum security — the layer where value breaks — effectively controls the restructuring, and that is often not the party founders expect.