“A PRIMER ON DISTRESSED DEBT INVESTING” (STUDY SESSION 8) A) EXPLAI...

6. “A Primer on Distressed Debt Investing” (Study Session 8)

a) explain factors that promote the growth of the distressed debt market;

b) explain the investment objectives of distressed debt investors (vultures);

c) describe the bankruptcy process and explain its relationship with distressed investing;

d) explain how to use LBO (leveraged buy-out) firms’ distressed debt to recycle private

equity;

e) describe the process for investing in distressed buyouts;

f) explain how to convert distressed debt to private equity in a prepackaged bankruptcy;

g) describe how to use distressed debt for a takeover;

h) explain how to profitably invest in distressed debt as an undervalued security;

i) explain how a distressed debt arbitrage is constructed;

j) assess the effect of event risk on the skewness and kurtosis of the return distribution

of distressed debt;

k) discuss the major risks in distressed debt investing;

l) compare private equity investing to distressed debt investing.

Guideline Answer:

Part A

Note: The first factor in the Template for Question 11-A is completed as an example.

Judge whether each of the

factors researched by

Vinepal is likely to decrease,

have no effect on, or

increase the size of the

Support each of your responses with

Factor

marketability discount

one reason

associated with the Rucoin

family’s plan to sell its

Easton shares

(circle one)

Example: