This site is run by a poster on these forums but I think this post deserves attention because it is well written and includes a good looking Excel model. The layout and example are both simple but that will make the most sense for the most people reading the article.
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Great stuff. Thanks for sharing
Thanks 1337, I just posted the article last night and I really appreciate your comment. I want to help driven people get the jobs they want, and getting feedback like yours is what drives me to do more.
And I even watched There Will Be Blood again over the weekend just to prepare for the case!
You guys motivate me to write, let me know what hedge fund topics you are most interested in and I'll keep going.
Kelvin
Thank you for helping us discover this wonderful website. Bookmarked.
I wouldn't say that that's particularly insightful or even a real world approach
Can you elaborate on how your desk's strategy is different oreos?
While I think Oreos was overly harsh - its helpful for college kids or inexperienced analysts - it is overly simplistic and I would agree not very real world, not in my experience anyway. Without getting into too many specifics - the biggest missing item is the entire concept of the fulcrum. In both scenarios 2/3, more so 2 but still 3, the distressed investors aren't just letting management sell the company at massive losses. For many distressed investors the point is to own the company, especially your example of a commodity company at a cyclical trough.
It's cool that you took the time to write it up and I think its great that people like you share knowledge, but its a very high level / beginner analysis for how a distressed investor thinks / analyses / structures investments.
The main point, as kes18 noted, is that it focuses on less relevant aspects. When looking at distressed the two key analyses are debt capacity and creation multiple. Liquidation value is a crutch which shouldn't be relied upon and many people do it poorly.
Thanks ke18sb, I appreciate your feedback. In the context of a restructuring, there would be a negotiation among creditors either settled out-of-court or litigated through a Ch. 11 filing. The negotiation is centered around the fulcrum security converting debt to equity, which typically needs a supermajority vote (>2/3) across the capital structure to happen.
If you think about a restructuring negotiation, the company's enterprise value or hard asset value is a key point of contention. Whether the company is sold outright to pay down creditors or is restructured through a debt-to-equity conversion, the financial analysis is about what the company is ultimately worth. And that's the key takeaway from the article: think about the different scenarios, and value the business based on enterprise value and asset value.
Each restructuring is different and the scenarios are fluid. Not every distressed business is sold outright to a financial or strategic buyer. It's up to the analyst / PM to think about the scenarios, value the business and recovery value, negotiate using your leverage, weigh the outcomes, and take a calculated risk.
The article is an introduction to the trade. I recommend this book as the next step into distressed investing, which over the years has become a gold standard in the field: https://www.amazon.com/Distressed-Debt-Analysis-Strategies-Speculative/…
Kelvin
Thanks, but for context I work at a distressed credit hedge fund.
Can someone repost the link-can't seem to find it
where is the link? I dont see anything
can someone send the link?
I second this
Bump. Would also like to see it.
bump
Yeah, no offense but for people looking to start learning this skill set, recommend just going straight to the Moyer book. It's difficult to start with but comprehensive enough that you'll learn it the right way
Understood. What about after reading the Moyer book? I see Wall Street Prep has a course for Restructuring Modeling, but, seems like this course is dedicated to companies already in bankruptcy.
Distressed Debt Investing has a reading list that includes Moyer's book and others. Additionally, it specifies reading order. If you got to the website, the link will be on the left hand side under Labels--do a text search for reading list.
Distressed-debt-investing.com has a million very good articles. If you're committed to learning a ton about the field then I would read that literally from beginning to end, very good overview of a ton of issues.
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