Hedge Funds & Distressed Debt
It has been noticed that in the recent years, many hedge funds have invested in distressed debt market securities. Much of the distressed debts consist of commercial and real estate loans originally made by companies, banks and other financial institutions, which are now in default, under bankruptcy protection, or in unmanageable financial condition and heading towards bankruptcy.
With a growing number of companies on default rate or teetering on bankruptcy, the number of hedge fund managers acting as distressed debt investors is all at cyclical highs. Hedge funds are also labeled as “vulture funds” because they attempt to capitalize on the debt of troubled companies, however, the value these investors bring back to the restructuring process of the company can not be ignored.
A hedge fund manager prior to making any investments in a financially troubled company assesses the quality of its management, the value of its assets, and the true risk of the borrower. A legal assessment of the loan documents and the lender's legal position with respect to other creditors plays a vital role in this assessment. However, the main goalof the hedge fund portfolio manager is restructuring of the defaulted loan that has landed the borrower in troubled waters.Guest Article contributed by Charles King
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1. What is a Hedge Fund?
2. Distressed Debt Securities
3. Master-Feeder Fund Structure
4. Hedge Fund High Water Mark Definition
5. Top 50 US Hedge Fund Groups
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Related Terms: Hedge Funds Distressed Debt Securities, Distressed Debt, Hedge Fund Distressed Securities, Hedge Fund Restructuring