Distressed Investments

Distressed investments refer to the purchase of debt or equity securities of companies that are in weak financial condition, distressed, or bankrupt. Private equity firms and other investors may specialize in distressed investing, aiming to turn around troubled companies and sell them for a profit. Two common distressed investment strategies are purchasing the debt of distressed companies at discounted prices and converting debt holdings into equity stakes, or providing rescue financing in exchange for equity. The goal is to implement major restructurings to restore the business to viability then exit at an optimal time. However, turnarounds often fail. Distressed investing requires expertise in bankruptcy proceedings, debt restructuring, and operational reorganizations to profitably execute deals. When successful, distressed investments can produce extremely high returns due to the low prices of purchasing shares in troubled companies.

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