Distressed debt investment model (from the lender's perspective)

Hi all,

I'm wondering if anyone can share a model that analyzes whether to lend money to a company in distress. Senior, collateralized, preferably in PIK form, but anything similar are better than none.
Many thanks!!

10 Comments
 

Thanks!

I assume the private debt holding period is 3 years. At the end of yr3, will the debt be refinanced? If so, how would you make the judgement whether there'll be new credit available?

 
uoft2013

Thanks!

I assume the private debt holding period is 3 years. At the end of yr3, will the debt be refinanced? If so, how would you make the judgement whether there'll be new credit available?

There is no set period. It is going to depend on the deal. Generally sub or mezz is 5-7, with no periodic payments and a bullet at the end. For DD/SS, you may find 2-4 year loan windows.

If the company is turned around, it will likely refinance ASAP to reduce its cost of capital going forward. How long that takes just depends.

 

Distressed-debt-investing.com walks through some models and assumptions in regards to distressed investing. Not very in depth, but I think it be something worth adding to whatever you have.

"History doesn't repeat itself, but it does rhyme."
 

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