Adrian's Reviews > Distressed Debt Analysis: Strategies for Speculative Investors

** spoiler alert ** Stellar work !

This is indeed the work of a titan. While i started the book thinking it would be mostly about these particular types of securities and how to invest in them.... i was in for a treat.

The book covers in depth topics that could benefit a multitude of categories of readers starting from fund managers, company officers , accountants , lawyers in the financial domain as well as investors.

The book starts with the definition of distressed investing.
Very interesting , it builds up on the reasons companies get distressed ; it follows with the not-known process of bankruptcy and liquidation and how all the parties fit in together and how the process moves forward, dividing the "pie" of assets.

The phrase that should stick with you regarding a bankruptcy process is:
"It is a zero sum game" where a category of parties benefit on the lose of another.

Next we get a deep lesson on company health indicators such as EBIT(A) , EV , Debt , cash flows , how to measure them and how to spot red flags based on these indicators or , why not , investing opportunities.


We are then taken into the realm of capital structures , debt , equity , notes and all other kinds of securities , their sizing and most importantly their priority in the case of a default.

Next thing we get in the shoes of company management and their available moves in case the company ia going southward.

We then get in the shoes of the different types of creditors /stakeholders in a distressed firm and their moves.

Very interesting is the fact that the book also presents hypothetical as well as real cases of distressed conpanies.We are presented on how real companies acted when in unfavourable situations as well as how a hypothetical scenario might play out.

By the end we are also presented how a reorganization plays out and how each creditor is affected by the new capital structure, and also what to expect as a stakeholder with an interest in the new company.

Topics such as secured/unsecured debt , convenants , pledge provisions , trade claims , very interesting - tax returns , carryforwards and NOL's are also tackled !

My favourite part by far was chapter 6 , discussing leverage , which when taking a loan represents X times the EBIT.(e.g: my EBIT is 200, if i burrow 500 , the leverage is 2.5).
It showed clearly based on a company EBIT what kind of debt it can sustain and manage to pay in a 5 year interval without going bankrupt.
The author did an astounding job in proving through real data based charts and calculaltions that a leverage of more than 2.5 makes a company unable to ammortize the loan in a 5 year gap.
In fact even a company that grows 8%/year can't do it and that considering a constant cash flow ! When the cash flow fluctuates it gets a lot worse.
Even though i do not own a company this example sticked to me and i am planning to follow it on myself as if i am if i will ever consider taking a loan.
Why are there people using leverages of 10 and more to buy houses/cars/stuff to show off is beyond my imagination !


This book is an enciclopedia in the fields of finance, investing and securities and i wholeheartedly recommend it to anyone interested in the aforementioned topics.