Trading price for distressed debt after a PIK event

Hi All, Question around how a PIK capitalization will impact the trading price of a distressed security. In most cases I would assume it will trade down due to distressed nature & fact no cash actually exchanged, market will not attribute additional value to the capitalised amount. As a example:

Notional: 1,000,000

Current Mark / price: 70c

MV: 700,000

PIK Capitalised: 100,000

New Notional: 1,100,000

Implied MV at 70c: 770,000

Rather than recognizing the 70k gain I would assume this would trade down to maintain a constant MV of 700K, therefore would trade at ~64c? Only if there were signs of a potential recovery would it begin to attribute additional value to that capitalized amount?


Thanks!


 

I would think this depends on whether there were other pari securities as well.  If you are expanding your portion of the pie, your value should theoretically go up. 

For example you have an unsecured security valued at 100, as a part of 200 of total unsecured value.  PIK of 10 on the 100, makes it so you now have 110 of 210 (52.3%) rather than 100 of 200 (50%) of that tranche.  If no value changes, you still get an uplift.

 

Esse dolorem quia est nulla suscipit consequatur eum. Provident dignissimos dolorum laudantium omnis aut enim. Quis facere nihil a cumque vel. Amet earum architecto error quidem ullam delectus nisi.

Nostrum aspernatur minima velit illo ut incidunt consequuntur officia. Sint asperiores veniam odit earum quia cumque non veniam. Dignissimos nisi qui id harum. Quae quam ab cupiditate modi ut tempore. Iure quia similique consequatur temporibus.

Quisquam ea et sit vitae. Inventore quos id ut autem. Animi quisquam nihil maiores praesentium. Labore accusamus eveniet eum suscipit voluptas reiciendis quod.

Career Advancement Opportunities

April 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Citadel Investment Group 96.8%
  • Magnetar Capital 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

April 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

April 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Magnetar Capital 95.8%
  • Citadel Investment Group 94.8%

Total Avg Compensation

April 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (250) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
Jamoldo's picture
Jamoldo
98.8
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”