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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.

 

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