Distressed Debt

[valuechaser]

I've been struggling to find good stock buys of late and have started to experiment with other strategies. I successfully completed a couple of merger arbitrage trades which got me motivated to look at other potential strategies. The one area I've always been interested in is distressed debt. Just for some background, I have experience working in M&A and Credit so I feel pretty comfortable reading indentures, loan agreements, etc. However, I was hoping to get some input or advice from the super intelligent people on this board.

 

Distressed debt is a relatively inefficient area of the market but is dominated almost exclusively by institutional investors who have better access to information, can do bigger trades and purchase senior secured loans to position themselves to drive the restructuring / liquidation process. I was wondering if anyone has any experience in distressed debt at the individual investor level. I imagine at the individual level you'd be limited to purchasing bonds and debentures which would sit lower than bank debt in the capital structure but could still potentially be very lucrative depending on the situation. I'm just not sure if there is usually enough liquidity and or access to even bonds and debentures in distressed situations for small trades.

 

Any advice, input, resources, books, shared experiences would be greatly appreciated. Thanks in advance.

[muscleman]

I've only had one investment of distressed debt so far, and I am also interested in more.

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/prhta-bonds/msg180767/#msg180767

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/any-distressed-debt-investors-here/

 

Let's not duplicate the threads. :)

[sculpin]

I have had success in the past buying distressed and high yield (YTM >15%) busted exchange traded convertible debentures that are traded on the Toronto Stock Exchange. The Financial Post provides a list of these debentures that is updated daily. Link is below...

 

http://www.financialpost.com/markets/data/bonds-debentures.html

 

As well, various value investors play in this market - like Francis Chou, Peter Pucetti at Goodwood, Saj Karsen etc. Here is one rec form Karsen I own...

 

http://www.barelkarsan.com/2013/07/pinetree-capitals-debt-in-free-fall-now.html

 

Also Snyder Brown has a good write up on the Fortress Paper 2016 converts currently trading at about $54.

 

https://www.hvst.com/posts/13799-snyder-brown-capital-management-q2-2014-letter