There are four specialized areas where a distress investor ought to be reasonably knowledgeable, say knowledgeable enough to be an informed, intelligent client: • Securities Law and Regulation • Financial Accounting • Income Tax Law and Regulation • Bankruptcy Law Distress Investing divides into five separate, but sometimes related, businesses.
1) Performing loans, where the great weight of probability is that the credit instruments will remain performing loans.
2) Small reorganization or liquidation cases, where the probabilities are that little or no values will be left for unsecured and under-secured (to the extent of the shortfall) pre-petition creditors, unless the reorganization or liquidation takes place in short order either out of court or in a pre-pack or pre planned Chapter 11 – say 2 or 3 months.
3) Large cases where, during the pendency of the case, the cash generated from not making cash payments to certain creditors, plus cash profits plus cash proceeds from asset sales, equals or exceeds the cash drain arising out of the administrative expenses which are payable in cash plus cash losses attributable to operating difficulties. Time in reorganization proceedings here is less important than for small cases, especially if the creditor class is to become entitled to post-petition interest payments.
4) Section 363 sales of assets by a debtor.
5) Capital infusions into troubled companies.
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1) Performing loans, where the great weight of probability is that the credit instruments will remain performing loans.
2) Small reorganization or liquidation cases, where the probabilities are that little or no values will be left for unsecured and under-secured (to the extent of the shortfall) pre-petition creditors, unless the reorganization or liquidation takes place in short order either out of court or in a pre-pack or pre planned Chapter 11 – say 2 or 3 months.
3) Large cases where, during the pendency of the case, the cash generated from not making cash payments to certain creditors, plus cash profits plus cash proceeds from asset sales, equals or exceeds the cash drain arising out of the administrative expenses which are payable in cash plus cash losses attributable to operating difficulties. Time in reorganization proceedings here is less important than for small cases, especially if the creditor class is to become entitled to post-petition interest payments.
4) Section 363 sales of assets by a debtor.
5) Capital infusions into troubled companies.
Read the complete letter
