Strategy #0000000054 · Distressed assets and restructuring events
Distressed-debt recovery investing
Separate reorganisation and liquidation cases; model probability, time, coupons and costs without treating face value as guaranteed recovery.
Distressed-debt investors buy defaulted or risky claims at a discount and estimate recovery through reorganisation, asset sale or liquidation. Chapter 11 can let a firm continue operating and propose a plan, but priority, creditor voting, court confirmation, superpriority financing and equity dilution affect recovery. Scenario probabilities are assumptions, not empirical forecasts; timing, discounting and legal costs matter.
Priority, collateral, legal process and enterprise value determine recovery; bankruptcy can delay and alter distributions.
Three ways in
Understand the story. Then inspect the risk.
Start with a familiar situation, check the payoff, then test how the numbers change.
The idea · in two minutes
How does probability-weighted, discounted restructuring/liquidation recovery compare with entry price?
Rose buys a distressed claim at 35 per 100 face. Jack enters assumed reorganisation and liquidation recoveries, reorganisation probability, waiting years, discount rate and coupon cash.
The calculator probability-weights the two exits, discounts them and compares them with entry. The result is an assumed return per 100 face; it does not value the estate, legal process or claim priority.
Actual recovery depends on new financing, collateral priority, court confirmation and creditor votes. Delays increase costs, while equity and junior claims may be heavily diluted or wiped out.
- Distressed-debt entry price / 100 faceEnter entry price, reorganisation/liquidation recovery, probability, coupon, discount rate and waiting years.
- Probability-weighted recovery assumptionNo observed default data, claim-priority waterfall, calibrated recovery, legal fees, financing or dilution model.
- Discounted recovery, coupon and cost scenarioIllustrative expiry outcome.
Illustrative research examples only. They are not live signals or a recommendation.
The mechanics · payoff and exposure
E[V_T]=pV_{reorg}+(1-p)V_{liq},\quad R=\frac{E[V_T]/(1+r)^T+Coupon-Cost}{P_0}-1
p is the user-assumed reorganisation probability; recoveries are per 100 face; r is discount rate and T the waiting period. Claim seniority is not modelled.
Greeks: the directional intuition
- 債權順位
- Measures sensitivity to implied volatility.
- 時間
- Measures sensitivity to implied volatility.
- 企業價值
- Measures sensitivity to implied volatility.
E[V_T]=pV_{reorg}+(1-p)V_{liq},\quad R=\frac{E[V_T]/(1+r)^T+Coupon-Cost}{P_0}-1
Practical context · published observations
Distressed-debt recovery investing: read the record with its caveats.
The chart uses the published figures or explicitly labelled study inputs below. A historical index or model replay is not the same as an investor’s realised account return.
無實際違約資料、債權順位瀑布、回收率校準、法律費用、融資或稀釋模型。 Source ↗ · Methodology ↗
Change assumptions and inspect the scenario
Inputs illustrate the strategy mechanics; they are not live quotes, forecasts or investment advice.
Variants · same family, different risk levers
Related strategies can have different exposures and failure modes.
Compare the mechanism and its limits.
| Related strategy | Relationship | What changes | New cost or risk |
|---|---|---|---|
| Passive recovery investing | Discounted claim | Holds a claim through reorganisation or liquidation. | Timing and recovery risk. |
| Loan-to-own | Restructuring control | Uses new secured lending or debt purchase to seek control after reorganisation. | Priority, dilution and court risk. |
| Distressed-debt relative value | Capital-structure arbitrage | Compares market prices of claims at different capital-structure ranks. | Seniority and documentation differences. |
No observed default data, claim-priority waterfall, calibrated recovery, legal fees, financing or dilution model.
Read beyond the summary
References
Primary sources and research used to describe the strategy and its limits.
- 01U.S. Courts, Chapter 11 Bankruptcy Basicsresearch
- 02Methodology and assumptionsprimary