Strategies · Library · Distressed assets
§15.2.2Event-driven
Buying outstanding debt
A variant of §15.2 Active distressed investing
Buy a distressed company's debt at a discount, expecting that part of it converts into equity after reorganisation and gives the holder a degree of control.
- Asset class
- Distressed assets
- Held for
- Years
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Discount of the debt to its likely recovery value
- Entry and exit
- Buy before reorganisation; hold through conversion into equity
- Sizing
- Concentrated in the target's debt
How it fails
- Debt may be wiped out
- Illiquid
- Court outcome
Data it needs
- bond prices
- capital structure
No individual bond data.
How ARCANE uses it
Background for a Call on a restructuring. Paper only.
Needs bond-level data and private claims.
Filed under the event-driven card
US stocks have tended to rise in the 24 hours before scheduled Fed decisions, whatever the decision. ARCANE’s rule goes further than the paper: position before a dated event only when Alpha’s chance differs from the market’s by a stated margin, and close once the outcome is public.
A paper plan from this card holds 1 to 30 days, stops at 1.5× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §15.2.2, p. 109 of the SSRN version. Described in our words. Event-driven is ARCANE’s filing, not the book’s.