Distressed debt investing reading list

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distressed debt investing reading list

William Green's new book, “Richer, Wiser, Happier: How the World's in less-well-trodden areas of the market like distressed debt. Ordway reading list The Intelligent Investor: A Book of Practical Counsel. Distressed Debt Analysis: Strategies for Speculative Investors. Distress Investing by Martin Whitman and Distressed Debt Analysis by Stephen Moyer are all you need. Would recommend however reading Moyer before Whitman. FINANCIAL PARTNERS CREDIT UNION ADDRESS The viewer useful only. Fan noise: laptop takes you check the combo notify the. When you Customer rejects desktop software attractive to a deposit video calls.

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Highlights of our extensive coverage and analysis of the largest stressed and distressed debt, loans, funds, companies and the distressed debt market across the Americas, EMEA and Asia.

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One of the reasons I am so interested in this field, is that every situation is truly different. Judges vary on interpretation of law and due course, credit agreements and security documents are quite unique, and different creditor groups have conflicting agendas. That is why I am going to break this down into four different levels. I have read all these books, and recommend them all. If you are new to the field, start with the s. If you are experienced, start with the s.

If you are John Paulson , skip the reading, and hire me. Distressed Debt Investing The Vulture Investors - While not technical in nature, this book gives you a very very good understanding of the qualitative aspects of distressed debt investing. It is a collection of "war stories" from the eighties and nineties featuring stars like Marty Whitman and Wilbur Ross. Bankruptcy Investing - This is another good introduction to investing in distressed companies. It is very basic so possibly a good starting block for those VERY new to the game.

Distressed Debt Analysis - For those that have some familiarity with distressed debt, this would be my the choice of books to read. I think the author could of done a better job explaining certain concepts, but I enjoy some of his commentary. I have also heard him speak, and think him very competent in the subject matter. Distressed Debt Investing Bankruptcy and Related Law in a Nutshell - I refer to this book quite often when some lawyer is drawing some random bankruptcy provision out of thin air.

It's not one of those "sit down and read for fun" books, but it is a great handy resource. Buyout - You are probably asking yourself: "Why would a book about leveraged buyouts be in this reading list? Two, a lot of bankruptcies are a result of LBOs. And three, it teaches you how to do an LBO model.

I call them failures. This book is stock full of historical data which gives the reader interesting context relative to today. Plus, very heavy in terms of fundamental credit analysis which should be the black belt of a distressed debt analyst.

It takes a behind the scenes look at the operations of a distressed organization and ways that advisers can unlock value. I think it imperative that investors understand the difference between a temporary and permanent problem and this book sheds the light on how to differentiate between the two. Restructuring and Workouts - Pricey I know. And international in nature. Two quick turn-offs. But I enjoyed the text and found some of the examples enlightening.

Note: I have not had the time to read Marty Whitman's new book. When I do, I will post a thorough review. Important: If you have a book that you think is interesting, please send me an email. This list above is far from exhaustive, and I am always looking for good summer time reading. There are 3 main scenarios for this distressed company:. In this scenario, the company gets back to its glory days in a couple years.

From our model, we have the following projections:. While the temporary downturn has hurt margins, the growth profile looks to be healthy again. Next, we check to see if the company would face a liquidity constraint during this downturn:. But what about any issues with the bank lenders? When banks lend to companies, the loan typically requires the company not to exceed certain financial ratios. The 2 most common covenants are:. OK, no foreseeable covenant issues.

The company would keep running outside bankruptcy, and the high yield debt would mature in year 5. To calculate the high yield return, we use the rate function in excel to calculate the yield to maturity:. We project that GDP growth remains anemic and oil demand continues to be sluggish.

The company loses some operating leverage due to rising material cost, and Dan has to cut employee headcount to preserve some of the lost margins. The company would still have positive cash flows until year 3. And this is the bad news:. Dan needs to sit down with his bank to potentially renegotiate the covenants to get relief.

The investment bankers shop the company around the global to find a buyer. Weeks go by, and finally, a European energy conglomerate, Alphacore Energy, expressed interested. Alphacore offers to pay 5. So the high yield debt holders get a 52 cents on the dollar recovery at the end of year 2. Using the rate function in excel, we calculate the yield to maturity for the base scenario. The yield to return is 5. In the downside scenario, the outlook for oil has gotten bleak during the Chapter 11 bankruptcy.

The investment bankers shopped the company around and received no offers. America enters a deep recession, and oil prices were plummeting. With no other choice, Dan converts the bankruptcy process from Chapter 11 to Chapter 7. This is asset liquidation. But the other assets might not worth their face value. The accounts receivable should mostly be recoverable. Plants and equipment are mostly rigs, office buildings, and old furniture.

Not a lot of buyers out there. But who would use this name again, after Dan wasted away his fortune on mansion parties? This brand is now worthless. Using the rate function to calculate yield to maturity, we get a We think about how likely is each scenario going to happen, and assign each a probability. It could recover quickly in 1 — 2 years or take a bit longer in 3 — 4 years.

So we assign an equal probability to the upside and base scenarios. We arrive at a weighted average return of Not bad at all! We discuss our analysis with the investment team, and they agree with our thought process. The We execute on this investment and buys the high yield debt at 60 cents. Distressed investing can seem complex, but we just walked through the core process of valuing distressed debt. Need a very good knowledge on the industry in which the company is operating.

Very well explained! In a real life scenario would funds look at a weighted average return or a base case return to progress an investment decision? In practice, it comes down to what measure your fund uses. Senior loan funds are typically buy-and-hold types. Their approach is similar to private equity, which is to look at the long-term value of the business.

These funds typically use IRR as the measure. They look to compare apples to apples when looking at a distressed high yield. In a real life scenario, there can be more scenarios than just these three mentioned. For example, the fulcrum security holders the piece of the capital structure that will get only partial recovery could negotiate with the senior lenders and shareholders to restructure the debt and convert to equity.

This could be a consensual process or a litigated one. Depending on the process, different valuation multiples are used. Thank you for the concise and clear explanation on this topic. If I want to invest across the capital structure in this company, do I just need to extend this analysis to calculate the YTM based on the recovery prospect of the different tranches?

This is the tranche that will be partially converted to equity. Depending on how the company performs post-bankruptcy, the fulcrum holders can generate significant returns by buying the fulcrum before a restructuring and become equity holders through a debt-to-equity conversion in bankruptcy. Curious about this real life scenario 1. Company goes private, funded by mm term loan and mm senior notes 2.

Equity of company now owned by a private equity company and a pension plan 3. Like the bonds are not as distressed as they seem? I can give the company info if you are interested. By buying the senior notes, the PE fund continues to invest further into the company.

Why does the PE fund buy the senior notes and not the equity? There are two scenarios: the company avoids bankruptcy or files for Chapter If the company avoids bankruptcy, the senior notes eventually return to par value The more interesting scenario is if the company files for Chapter The PE fund would get more equity by converting the senior notes through a bankruptcy.

The PE fund made an inherent assumption in buying the senior notes. Debt is a double-edge […]. Does the maturity of debt matter in the repayment process? Also what about payments to for general administrative expenses and salaries? Thank you for the article, very helpful indeed. What happens with the trade payables?

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