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Distressed Debt Analysis: Strategies for Speculative Investors
Providing theoretical and practical insight, Distressed Debt Analysis: Strategies for Speculative Investors presents a conceptual, but not overly technical, outline of the financial and bankruptcy law context in which restructurings take place. The book covers the broader financial environment of the reorganization and the basic process of investment analysis and investment strategies. The author uses numerous real-world examples and case studies to emphasize important concepts and critical issues. The developments that have created these extraordinary investment opportunities have also created tremendous demand for professionals with experience and knowledge in the restructuring process. Distressed Debt Analysis: Strategies for Speculative Investors addresses the complete knowledge needs of investors and professionals in the burgeoning world of financially distressed companies. It is perfect for financial analysts, portfolio managers, bankruptcy departments of law firms, restructuring advisory groups, turnaround consulting firms, and reorganization and distressed securities departments of investment banks.
448 pages, Hardcover
First published November 10, 2004
141 people are currently reading
1358 people want to read
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Displaying 1 - 30 of 30 reviews
June 3, 2020
I made the mistake of reading this book as the last one in a deep dive on distressed investing. Even though it was recommended highly by people in the industry that I trust, it arrived last and I got through the three other ones first.
This was by far the best and most practical book. Most other books on the topic becomes rather academic and while they give a good overview, hey don't provide the same action-oriented insights as this one.
Is highly recommend it for anyone interested in understanding distressed debt investing.
This was by far the best and most practical book. Most other books on the topic becomes rather academic and while they give a good overview, hey don't provide the same action-oriented insights as this one.
Is highly recommend it for anyone interested in understanding distressed debt investing.
March 22, 2020
A must read for anyone who is interested in distressed debt trading, bankruptcy proceeding and restructuring, capital structure arbitrage and postreorganization.
May 30, 2023
Excellent - comprehensive and approachable work for anyone interested in the credit workout process.
January 4, 2021
Stellar work !
This is indeed the work of a titan. While i started the book thinking it would be mostly about these particular types of securities and how to invest in them.... i was in for a treat.
The book covers in depth topics that could benefit a multitude of categories of readers starting from fund managers, company officers , accountants , lawyers in the financial domain as well as investors.
The book starts with the definition of distressed investing.
Very interesting , it builds up on the reasons companies get distressed ; it follows with the not-known process of bankruptcy and liquidation and how all the parties fit in together and how the process moves forward, dividing the "pie" of assets.
The phrase that should stick with you regarding a bankruptcy process is:
"It is a zero sum game" where a category of parties benefit on the lose of another.
Next we get a deep lesson on company health indicators such as EBIT(A) , EV , Debt , cash flows , how to measure them and how to spot red flags based on these indicators or , why not , investing opportunities.
We are then taken into the realm of capital structures , debt , equity , notes and all other kinds of securities , their sizing and most importantly their priority in the case of a default.
Next thing we get in the shoes of company management and their available moves in case the company ia going southward.
We then get in the shoes of the different types of creditors /stakeholders in a distressed firm and their moves.
Very interesting is the fact that the book also presents hypothetical as well as real cases of distressed conpanies.We are presented on how real companies acted when in unfavourable situations as well as how a hypothetical scenario might play out.
By the end we are also presented how a reorganization plays out and how each creditor is affected by the new capital structure, and also what to expect as a stakeholder with an interest in the new company.
Topics such as secured/unsecured debt , convenants , pledge provisions , trade claims , very interesting - tax returns , carryforwards and NOL's are also tackled !
My favourite part by far was chapter 6 , discussing leverage , which when taking a loan represents X times the EBIT.(e.g: my EBIT is 200, if i burrow 500 , the leverage is 2.5).
It showed clearly based on a company EBIT what kind of debt it can sustain and manage to pay in a 5 year interval without going bankrupt.
The author did an astounding job in proving through real data based charts and calculaltions that a leverage of more than 2.5 makes a company unable to ammortize the loan in a 5 year gap.
In fact even a company that grows 8%/year can't do it and that considering a constant cash flow ! When the cash flow fluctuates it gets a lot worse.
Even though i do not own a company this example sticked to me and i am planning to follow it on myself as if i am if i will ever consider taking a loan.
Why are there people using leverages of 10 and more to buy houses/cars/stuff to show off is beyond my imagination !
This book is an enciclopedia in the fields of finance, investing and securities and i wholeheartedly recommend it to anyone interested in the aforementioned topics.
This is indeed the work of a titan. While i started the book thinking it would be mostly about these particular types of securities and how to invest in them.... i was in for a treat.
The book covers in depth topics that could benefit a multitude of categories of readers starting from fund managers, company officers , accountants , lawyers in the financial domain as well as investors.
The book starts with the definition of distressed investing.
Very interesting , it builds up on the reasons companies get distressed ; it follows with the not-known process of bankruptcy and liquidation and how all the parties fit in together and how the process moves forward, dividing the "pie" of assets.
The phrase that should stick with you regarding a bankruptcy process is:
"It is a zero sum game" where a category of parties benefit on the lose of another.
Next we get a deep lesson on company health indicators such as EBIT(A) , EV , Debt , cash flows , how to measure them and how to spot red flags based on these indicators or , why not , investing opportunities.
We are then taken into the realm of capital structures , debt , equity , notes and all other kinds of securities , their sizing and most importantly their priority in the case of a default.
Next thing we get in the shoes of company management and their available moves in case the company ia going southward.
We then get in the shoes of the different types of creditors /stakeholders in a distressed firm and their moves.
Very interesting is the fact that the book also presents hypothetical as well as real cases of distressed conpanies.We are presented on how real companies acted when in unfavourable situations as well as how a hypothetical scenario might play out.
By the end we are also presented how a reorganization plays out and how each creditor is affected by the new capital structure, and also what to expect as a stakeholder with an interest in the new company.
Topics such as secured/unsecured debt , convenants , pledge provisions , trade claims , very interesting - tax returns , carryforwards and NOL's are also tackled !
My favourite part by far was chapter 6 , discussing leverage , which when taking a loan represents X times the EBIT.(e.g: my EBIT is 200, if i burrow 500 , the leverage is 2.5).
It showed clearly based on a company EBIT what kind of debt it can sustain and manage to pay in a 5 year interval without going bankrupt.
The author did an astounding job in proving through real data based charts and calculaltions that a leverage of more than 2.5 makes a company unable to ammortize the loan in a 5 year gap.
In fact even a company that grows 8%/year can't do it and that considering a constant cash flow ! When the cash flow fluctuates it gets a lot worse.
Even though i do not own a company this example sticked to me and i am planning to follow it on myself as if i am if i will ever consider taking a loan.
Why are there people using leverages of 10 and more to buy houses/cars/stuff to show off is beyond my imagination !
This book is an enciclopedia in the fields of finance, investing and securities and i wholeheartedly recommend it to anyone interested in the aforementioned topics.
This entire review has been hidden because of spoilers.
October 19, 2024
- Unless one has a significant position in the bonds holding, one should be cautious of investing in distressed bond due to one would be in a rather passive position
- On credit spreads: the author noted that during good times, the spread between junk bonds and investment grade bonds are actually very narrow. Only during extreme times (note: extreme times could still last few years), the gap widens significantly. Thus, the play book to play junk bond requires a certain kind of set-up background wise. (In addition, due to the illiquid nature of junk bond during extreme times, speculative investors ought to have a strong (cash) balance sheet to withstand prolong period of illiquidity. One thing I have to add - even liquid instruments such as treasury bonds, during extreme times, while still liquid, has a huge bid-ask spread. Thus strong (cash!) balance sheet is necessary to play this).
- On ratings of debt: as Michael Milken told Howard Marks many years ago, that the rating itself is pointless unless one takes account of the price. When the price reflect intrinsic value of the business by being heavily discounted, a BBB rated bond could very easily yield much higher than AAA rated bond with minimal risk profile. Quote from Marks of Milken:
Marks also said:
- (On a side note: I’ve been reading various other distress debt analysis book. It’s simply whacky - hilarious, almost - how the academic way of studying it uses more of a probability approach. As if they’re studying the underlying intrinsic value like how they study equity using Modern Portfolio Theory)
- (Also while reading the book, I thought of something. The widespread use of index fund, in essence, will basically work as a subsidy for distressed debt investor. Since equity will be wiped out regardless, and index fund holders - like it or not - have to pay for the soon to be worthless equity during times of widespread distress without even knowing what they bought into - since index fund doesn’t discriminate between worthless and worthy equity picks. The widespread nature of index fund will lower the return for average investor over the long run and increase the return for instrument picker. Since index fund’s diversification is only limited in equity not debt.)
- Out of court restructuring: oftentimes preferred because bankruptcy court takes a long time and costs a lot of money. Bond holder committee would be formed informally, since it’s usually the bondholder’s job to organize (and management would only deal once the committee have over 25% of the bond outstanding). The author noted that the goal of the committee is more of a “political check” - to give the management pressure, for instance - rather than actual meanings (since majority bondholder’s decision are not legally binding, and equity holder still have sayings till the actual bankruptcy)
- Author mentions that during the spike of the debt distress cycle, analysts are actually racing against time: the window for heavily discounted debt will suddenly open up and an efficient way to screen security would be the key
- On the optimal strategy of due diligence: during times of distress, more securities will be traded at seemingly discounted value than normal times. It’s much better to not be greedy, and focus on the firms that one have prior solid fundamental thesis on, rather than seeking heavily discounted company and dismiss the usual fundamental analysis. Making less money is always more ideal than losing everything
- Before studying a firm, it’s vital to understand its capital structure first. Oftentimes, equity investors are (eventually) not going to be the owners, nor would be the senior debt holders - but rather than the lien holders. Depending on the industry, title search might be necessary for further investigation
- Bankruptcy proceedings could be accessed through PACER (or simply look up the docket number, oftentimes law firms post them for free online)
- Company managements are often seldom up front about bankruptcy details to investors, due to the fact that they often fear excess information would disturb company value
- Order of debt: often times, a company during bankruptcy or pre-bankruptcy procedures still would pay critical vendor, in hope of not harming the company value post bankruptcy. However, if the company do eventually file for liquidation, the critical vendor payment would’ve been made (even though those payments are not liens and it might appears on paper that your debt is the most senior)
- Cash build up could occur right after bankruptcy is filed since the company then no longer needs to pay the creditors. In the case of when a company is in the procedure with large amount of unsecured debt, unsecured debt payment could deem rather useless for liquidation purposes
- Order of liquidation/payment: Critical vendor > Liens (Federal > State > Local > Property Liens) > Senior Debt > Junior Debt > Unsecured Debt
- Bankruptcy is not a taxable event. While NOL is allowed, it does not matter during the bankruptcy proceedings (however, post bankruptcy, tax related circumstances could occur)
- On credit spreads: the author noted that during good times, the spread between junk bonds and investment grade bonds are actually very narrow. Only during extreme times (note: extreme times could still last few years), the gap widens significantly. Thus, the play book to play junk bond requires a certain kind of set-up background wise. (In addition, due to the illiquid nature of junk bond during extreme times, speculative investors ought to have a strong (cash) balance sheet to withstand prolong period of illiquidity. One thing I have to add - even liquid instruments such as treasury bonds, during extreme times, while still liquid, has a huge bid-ask spread. Thus strong (cash!) balance sheet is necessary to play this).
- On ratings of debt: as Michael Milken told Howard Marks many years ago, that the rating itself is pointless unless one takes account of the price. When the price reflect intrinsic value of the business by being heavily discounted, a BBB rated bond could very easily yield much higher than AAA rated bond with minimal risk profile. Quote from Marks of Milken:
If you buy AAA or AA bonds they only have direction. If you buy single B bonds, and they survive, all the surprise will be on the upside.
Marks also said:
There's not such thing as a good investment idea, until you've discussed price.
Investing well is not a matter of buying good things, it's about buying things well. And people have to understand the difference. And if you don't understand the difference you are in big trouble.
- (On a side note: I’ve been reading various other distress debt analysis book. It’s simply whacky - hilarious, almost - how the academic way of studying it uses more of a probability approach. As if they’re studying the underlying intrinsic value like how they study equity using Modern Portfolio Theory)
- (Also while reading the book, I thought of something. The widespread use of index fund, in essence, will basically work as a subsidy for distressed debt investor. Since equity will be wiped out regardless, and index fund holders - like it or not - have to pay for the soon to be worthless equity during times of widespread distress without even knowing what they bought into - since index fund doesn’t discriminate between worthless and worthy equity picks. The widespread nature of index fund will lower the return for average investor over the long run and increase the return for instrument picker. Since index fund’s diversification is only limited in equity not debt.)
- Out of court restructuring: oftentimes preferred because bankruptcy court takes a long time and costs a lot of money. Bond holder committee would be formed informally, since it’s usually the bondholder’s job to organize (and management would only deal once the committee have over 25% of the bond outstanding). The author noted that the goal of the committee is more of a “political check” - to give the management pressure, for instance - rather than actual meanings (since majority bondholder’s decision are not legally binding, and equity holder still have sayings till the actual bankruptcy)
- Author mentions that during the spike of the debt distress cycle, analysts are actually racing against time: the window for heavily discounted debt will suddenly open up and an efficient way to screen security would be the key
- On the optimal strategy of due diligence: during times of distress, more securities will be traded at seemingly discounted value than normal times. It’s much better to not be greedy, and focus on the firms that one have prior solid fundamental thesis on, rather than seeking heavily discounted company and dismiss the usual fundamental analysis. Making less money is always more ideal than losing everything
- Before studying a firm, it’s vital to understand its capital structure first. Oftentimes, equity investors are (eventually) not going to be the owners, nor would be the senior debt holders - but rather than the lien holders. Depending on the industry, title search might be necessary for further investigation
- Bankruptcy proceedings could be accessed through PACER (or simply look up the docket number, oftentimes law firms post them for free online)
- Company managements are often seldom up front about bankruptcy details to investors, due to the fact that they often fear excess information would disturb company value
- Order of debt: often times, a company during bankruptcy or pre-bankruptcy procedures still would pay critical vendor, in hope of not harming the company value post bankruptcy. However, if the company do eventually file for liquidation, the critical vendor payment would’ve been made (even though those payments are not liens and it might appears on paper that your debt is the most senior)
- Cash build up could occur right after bankruptcy is filed since the company then no longer needs to pay the creditors. In the case of when a company is in the procedure with large amount of unsecured debt, unsecured debt payment could deem rather useless for liquidation purposes
- Order of liquidation/payment: Critical vendor > Liens (Federal > State > Local > Property Liens) > Senior Debt > Junior Debt > Unsecured Debt
- Bankruptcy is not a taxable event. While NOL is allowed, it does not matter during the bankruptcy proceedings (however, post bankruptcy, tax related circumstances could occur)
November 5, 2024
Don’t read this lol. Just adding it so I can hopefully hit my goal 💯
Honestly not a bad book for finance books. Written in laymen’s terms
Honestly not a bad book for finance books. Written in laymen’s terms
December 22, 2023
This book holds valuable information. I even claim that it is a must-read for stocks and bonds enthusiasts. However, it is tough to read.
The author, an experienced investment professional, explains advanced details well. Yet, long sentences make the material hard to grasp. It took me a long time to finish reading this book, and I constantly struggled with sleepiness. If you have insomnia, now you know a surefire remedy with no harmful side effects.
Though I spent too much time in this book, it was worthwhile. It triggered significant changes in me. When analyzing companies, I delve into their long-term debt structure, not just revenue and profitability. Recently, I successfully navigated the tedious notes to financial statements in a company's 10-K form. It happened for the first time in my life. I was able to extract valuable insights from those notes. Not many investing enthusiasts can do this, and I believe it will boost my results.
Typically, authors write in complex, convoluted language, trying to disguise the fact that they have nothing to say. This book is a rare exception. The author is a competent expert in debt instrument analysis. He explains advanced details effectively. The only downside is some very long sentences. However, this drawback is serious. Consider yourself warned.
Despite the shortcomings I described, the book is excellent. It has not lost its relevance since 2004. I found it more helpful than Damodaran's "Investment Valuation" and Mauboussin's "Expectations Investing."
The author, an experienced investment professional, explains advanced details well. Yet, long sentences make the material hard to grasp. It took me a long time to finish reading this book, and I constantly struggled with sleepiness. If you have insomnia, now you know a surefire remedy with no harmful side effects.
Though I spent too much time in this book, it was worthwhile. It triggered significant changes in me. When analyzing companies, I delve into their long-term debt structure, not just revenue and profitability. Recently, I successfully navigated the tedious notes to financial statements in a company's 10-K form. It happened for the first time in my life. I was able to extract valuable insights from those notes. Not many investing enthusiasts can do this, and I believe it will boost my results.
Typically, authors write in complex, convoluted language, trying to disguise the fact that they have nothing to say. This book is a rare exception. The author is a competent expert in debt instrument analysis. He explains advanced details effectively. The only downside is some very long sentences. However, this drawback is serious. Consider yourself warned.
Despite the shortcomings I described, the book is excellent. It has not lost its relevance since 2004. I found it more helpful than Damodaran's "Investment Valuation" and Mauboussin's "Expectations Investing."
February 5, 2023
Lol I could tell this was written for distressed and RX noobs but I'd be a fucking liar if I said I understood most of this lmfao. Wonder how finance bros can function effectively as good distressed investors when so much of it seems to revolve around clever legalese. Don't know if RX bankers or even lawyers would be significantly better distressed investors than the atypical former M&A banker or deep value hedge fund analyst. More digging to do in this subject, but I seem to have realized that equities interest me more.
This book seems to have many timeless principles, he doesn't deep-dive into dated case studies of the early 2000s which is cool.
Would be cool if anyone could write a 2nd edition on this to reflect the change we've seen over the past 2 decades. Have a feel that fintech and obviously crypto presents a sea change for distressed, but I'm no expert. Obviously would love to read an FTX Chap 11 restructuring case study. Don't know if cryptocurrency accounting represents a change in the game, but again, I'm no expert.
Feel that the emergence of fintech and crypto firms (but obviously crypto has seen a dip now) brings a whole new investment universe for restructuring bankers and distressed/ HY bros. Crypto has no collateral, and insane balance sheets which makes shit even messier.
So yeah, would love to see an update on this.
This book seems to have many timeless principles, he doesn't deep-dive into dated case studies of the early 2000s which is cool.
Would be cool if anyone could write a 2nd edition on this to reflect the change we've seen over the past 2 decades. Have a feel that fintech and obviously crypto presents a sea change for distressed, but I'm no expert. Obviously would love to read an FTX Chap 11 restructuring case study. Don't know if cryptocurrency accounting represents a change in the game, but again, I'm no expert.
Feel that the emergence of fintech and crypto firms (but obviously crypto has seen a dip now) brings a whole new investment universe for restructuring bankers and distressed/ HY bros. Crypto has no collateral, and insane balance sheets which makes shit even messier.
So yeah, would love to see an update on this.
July 26, 2023
Though this is supposedly the end-all-be-all of restructuring books, I think it is showing its age in 2023. While it is definitely comprehensive, I found it tough to read cover to cover from a writing style perspective. On the digital copy I had, some paragraphs took up entire pages, and the text was somewhat repetitive, so some sections felt like I was running in circles. The regulations have changed slightly so the book would benefit from a refresh reflecting that. Lastly, as someone who doesn't play chess, I thought the chess moves at the end of each chapter were a cheesy touch.
That said, the book was very comprehensive and detailed about the entire restructuring process. Though it may not be fit to be a perfect, up-to-date reference book, it definitely got me excited about restructuring.
That said, the book was very comprehensive and detailed about the entire restructuring process. Though it may not be fit to be a perfect, up-to-date reference book, it definitely got me excited about restructuring.
November 26, 2016
This book is apparently a must read for distressed debt investors. After reading it I could see why. Its written in a way that a lot of beginners can understand. A lot of areas have been covered. So a great way to start learning on the subject.
On the negatives the first is that its written from thr context of the US legal environment. The legal aspects of distressed investing will differ substantially across countries. The author also had to simplify a very complex subject in order for readers to understand easily. In reality capital structure arbitrage will be quite a bit more difficult than the examples described.
On the negatives the first is that its written from thr context of the US legal environment. The legal aspects of distressed investing will differ substantially across countries. The author also had to simplify a very complex subject in order for readers to understand easily. In reality capital structure arbitrage will be quite a bit more difficult than the examples described.
June 26, 2020
This textbook is required by AP' online training program. Accompanying the financial modeling for restructuring, this books provides detailed analysis and strategies for distressed debt investors. Comprehensive topics including overview of financial distress, restructuring process, valuation, concepts of leverage and credit support, capital structure, investment opportunities, practical aspects of investment process and due diligence, as well as post-organization considerations.
August 15, 2021
Very technical and felt like a textbook at times, but it's a daunting task to boil down a complex topic. Great as a primer. Chapters towards the end skew towards US legal rules for bankruptcy proceedings.
Markets have shifted since early 2000s but the examples remain relevant. Examples were practical, simplified and easy to understand.
For me, it was a good refresher for concepts that I take for granted.
Markets have shifted since early 2000s but the examples remain relevant. Examples were practical, simplified and easy to understand.
For me, it was a good refresher for concepts that I take for granted.
November 2, 2020
This is an outstanding guide in distressed investing. I picked it up because I am researching on a mall operator which just filed. Not only does it help me understand the different investment techniques into and during the different stages of bankruptcies , it also strengthens my understanding in asset valuation and capital structure. I learn so much.
June 2, 2020
Distressed Debt Analysis is the best starting point for anyone to get a good high level understanding of distressed debt. It's written in a relatively straightforward/simple way that makes digesting the material quick & easy given the content. Can't recommend it enough!
December 30, 2022
Very enjoyable read and more manageable than I initially expected (finished in ~1 week with little background knowledge). Does not disappoint, and my expectations were already sky high. Will definitely revisit certain sections in the future. Highly recommend for anyone curious!
February 26, 2021
Best restructuring/distressed debt textbook out there
July 17, 2021
best book on distressed investing and it's not even close
May 14, 2023
Classic
October 6, 2023
Someone cooked here
December 31, 2023
Good intro to the topic
May 15, 2024
This book provided me with a foundational understanding of distressed debt and corporate bankruptcy.
July 24, 2025
Good book, need to study the topics more in depth, and re read / refer back to this book.
August 19, 2025
Extremely dry, took forever, and not one applicable lesson learned in my 6 months as an intern at a credit hedge fund
August 30, 2024
Very helpful background text that improved my understanding of distressed investing. This book provided a clear framework to think about the key issues confronting a distressed debt investor as well as actionable insights. I appreciated the willingness of the author to connect the theory to strategies and ways to capitalize on that theory and the providing practical examples to drive home the operation of the relevant principles and allowing the reader to test their own understanding of the material. I felt the book also moved at a reasonable pace for someone without a significant amount of background knowledge in this area, though at times some parts did feel repetitive and at others felt very dense. Nonetheless, while this read like a textbook I still enjoyed reading the book. Overall, I feel I learned a lot more about a topic that I am very interested in and now have a strong foundation to consume other works to compound on this learning.
April 27, 2013
A high level overview of a complex segment of the market, but concisely presented into a number of key principles for the distressed investor. The analogy with the game of chess throughout the book, helps highlight the multiple facets, players and interests of the market and how strategy and due diligence can identify opportunities in the distressed market with high probability weighted chances of success. Definitely will use the book for reference in the future.
August 30, 2023
Best book for investing IMO (from one who's read a ton of them; think it ends here) even if one has no intention to get involved with distressed debt. Tons of concepts that cross over to equity investing; whilst the book features a certain level of complexity (delving into cap structures) and terminology, it is well worth a crack for serious investors.
August 11, 2016
Very well written with great insight into how the legal structure of Chapter XI can influence financial decisions. High-level obviously but great way to get an intro to concepts such as fraudulent conveyance, automatic stay, executory contracts and cram-down.
February 11, 2012
The text book on distressed debt analysis. I hand out a copy to all my analysts.
Read
January 22, 20141234
January 13, 2016
Best book on distressed debt investing I know of
Displaying 1 - 30 of 30 reviews