Any distressed fund analysts?

Question

How does your fund screen investment ideas? Do you go through recent bankruptcy reports and try to find potential good deals?

Kenny_Powers_CFA · Accepted Answer

I mostly agree with the above though I do think there're some important differences (largely in the nuances of the bankruptcy process and some of the related capital structure dynamics.

As people above have pointed out, distressed is somewhat "reactive" by nature.
I work for a multi-strategy fund and our credit desk is responsible for a range of strategies, but within distressed specifically we typically source ideas a few ways:

a) Analysts track issuers in our sectors and keep an eye out for deteriorating credit situations and large movers
b) Analysts and traders talk to sell-siders about t

mrb87 · Answer

From my experience, if you're reading bankruptcy filings for ideas you are way too late to the party.

What's worked better is looking for vulnerable and out-of-favor names/sectors and tracking them pre-distress. Realistically you are not going to be able to buy stuff at the trough but that's the price you have to pay for access in these situations -- trough prices will coincide with almost 0 liquidity. By the time an issuer files, the table is basically already set.

mrb87 · Answer

After you find a list of companies in distress, what are the key qualities you look for when making your first round of elimination?

It's really the same as any analysis from there: Do I like the business, and do I think it's worth more than the market is valuing it? Basically you want to avoid trying to catch the falling knife. The added wrinkle is that with more complicated corporate structures (lots of subsidiaries, intermediate holdcos, cross guarantees, etc...) you also need to figure out where the value flows in the corporate structure.

ke18sb · Answer

One thing of note on the distressed credit side, especially in the middle market, is you can't always just buy into a position. You can do all the research in the world but if there is no supply, obviously at the price you want, you aren't getting in. Some distressed/stressed bonds will go months without a material trade. Unlike equities there is not a lot of liquidity especially in distressed credits. So its not as simple of following companies that are distressed and buying when you think its a good time.

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Any distressed fund analysts?

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Any distressed fund analysts?

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