Valuation methods used at Distressed/credit funds?
Title says it all - looking to get comfortable with all the different methods used to model in firms like this.
Trending Content - Hedge Fund Forum
Career Resources
I'll be as abrupt as your question: DCF, FLV
DCF is less common in my experience than recovery analysis which focuses on tangible assets, claims/priority/subordination, etc.
A distressed shop isn't using different valuation methodologies per se. Value is value.
That said, a way in which a distressed shop will view a transaction if via its creation multiple. For simplicity, say there is a $25mm ebitda company with a single tranche of debt with a face of 400mm. The company would have 16x leverage, yikes. However, if you're going to take control by equitizing your position, you might set a target purchase price of 25c on the debt which would allow you to create the company for 4x not 16x.
Of course there are then other layers to be added on to this analysis - your coupon while waiting, transaction/restructuring costs, post reorg management incentive plan, etc. But at a basic level it comes down to where are you creating your investment, the process of determining value would be no different than any other investing.
Sint deserunt rerum quisquam voluptatem eum ut sit error. Incidunt quia tempore ipsum et aliquid eius nihil. Deserunt itaque qui saepe omnis recusandae id alias. Inventore ut aut magnam at unde rerum modi. Placeat provident quia totam est nostrum aut.
Corrupti nam atque pariatur est cum fugiat. Et in similique qui voluptatem hic deleniti. Placeat molestias eos rerum sit et sit facere. Et corrupti totam expedita nostrum repellat.
Maxime perferendis omnis inventore qui qui. Aspernatur sunt culpa modi eveniet numquam rerum. Molestiae est incidunt aut in provident eveniet. Rerum quae qui eum et illo in.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...