Welcome to our ‘Discourse on Debt’ second monthly bond market commentary from Appomattox.
Debt investing is largely a negative art. Don’t lose money as your upside is capped. There is a lot of truth to that saying, but it is not the whole story when it comes to active stressed and distressed investing. Here, large players try to control whole tranches of debt of the issuer to either control the bankruptcy process and/or take control of the company – usually from a private equity sponsor or group of sponsors.
This form of controlled distress investing is like private equity with one key difference, the target companies (especially the senior management) are often unwilling participants. In fact, they are quite often adversarial to the vulture funds and vice versa. I once sat in a meeting where a Senior Managing Director of Distressed Investing at one of the money center banks (that would later fail during the financial crisis), told the CEO of a troubled company that he didn’t care about the management or his 2,000 employees and that anyone of his bank’s employees could replace all of them (unlikely, since it was a fast casual dining concept). These investors are the real barbarians at the gate, unlike the more gentile partners at KKR and Forstmann, Little & Co. depicted in the famous book Barbarians at the Gate about the RJR Nabisco takeover battle.
In the coming months, I will walk you through some case studies about distressed debt investing. In the meantime, I have a homework assignment for the holiday break. Read The Caesar’s Palace Coup. I promise a book review in the coming months.
This document does not constitute or form part of any offer of asset management products or services in any jurisdiction. Furthermore, this document does neither constitute an offer of asset management products or services.
The value of investments and any income generated may go down as well as up and is not guaranteed. You may not get back the amount originally invested. Past performance is not necessarily a guide to future performance. Changes in exchange rates may have an adverse effect on the value, price or income of investments.
The information and opinions contained in this document are for background purposes only, and do not purport to be full or complete. No representation, warranty or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Appomattox Advisory, Inc., its partners or employees and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. As such, no reliance may be placed for any purpose on the information and opinions contained in this document.
Significant differences in returns, risks and correlations may occur within sub-periods of the periods shown. Historical investment performance and market characteristics may not be indicative of future investment performance or market characteristics. There are frequently sharp differences between the hypothetical performance results and the results subsequently achieved by any particular trading or investment program.
