Corporate Financial Distress, Restructuring, and Bankruptcy, 4th Edition
by Edward I. Altman, Edith Hotchkiss, Wei Wang
CHAPTER 14The Anatomy of Distressed Debt Markets
In the 1993 and again in the 2006 editions of this book, we wrote that the market for investing in distressed securities, mainly debt obligations (the so‐called vulture markets), had captured the interest of increasing numbers of investors and analysts. These investors, sometimes categorized as “alternative asset” institutions, mainly hedge funds, now can convincingly argue that the market has matured into a genuine asset class, with a reasonably long history of data on return and risk attributes. And, we have been there every step of the way, researching its growth and performance, documenting its dynamics and nurturing the asset class growth with statistics and analytics.1
Our fascination with distressed firms and their outstanding securities began when the chairman of a lender and investor enterprise, the Foothill Group (now part of Wells Fargo), in debt of firms that were either already bankrupt or deeply distressed with the likely prospect of defaulting on its obligations, came to me (Altman) with an assignment to provide a descriptive and analytical white paper on what was generally known as “distressed” debt. This resulted in two monographs, one on Distressed Bonds (Altman 1990) and a second on distressed loans (Altman 1992). Our first task was to carefully define this market and after getting several interesting, but not sufficient, definitions from practitioners, such as bonds selling for less than 80% of par value, ...