Distressed Assets Investing

Introduction

In a global environment where credit is scarce and cash is invaluable, how organisations manage their capital agenda today will define their competitive position tomorrow. This requires business leaders and executives from across the enterprise to examine new strategic options relative to financing, resources and revenue growth. It is in this context that distressed asset investing represents a powerful opportunity. Distressed asset acquisition can be a shrewd deployment of corporate or private equity and hedge fund capital. But a strong understanding of distressed assets is imperative to avoid the inherent risks and to find and leverage the available opportunities.

Assets are usually considered "distressed" when their value is severely depressed for a reason particular to the issuer and not because of general market conditions. The most common situation is a commercial loan on which the issuer has defaulted on payments of interest or principal. Distressed asset investing generally, and emerging markets distressed investing in particular, are undertaken by a small number of firms. Implementing the strategies successfully requires specific skills and particular economic structures. For those firms with the appropriate professional skills and capital base, however, the strategies can be extremely profitable.

Distressed assets represent another form of investment assets. These investments are created by a number of scenarios. They can be formed by land from a foreclosure on a private residence, inventory from failed companies or even stocks and bonds that were issued by a company that has been forced into bankruptcy protection. Since the holder or seller of distressed assets is often in a dire financial situation, the assets typically can be purchased by the investor at a bargain price.

During an economic downturn, distressed assets are more prevalent because companies are more likely to come into financial hardship. These opportunities might be...