Strategies · Library · Distressed assets
§15.2.3Event-driven
Loan-to-own
A variant of §15.2 Active distressed investing
Lend on a secured basis to a distressed company that is not yet bankrupt. Either it recovers and the equity gains, or it files and the loan converts into equity with control rights.
- Asset class
- Distressed assets
- Held for
- Years
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Borrower's distress and strength of loan collateral
- Entry and exit
- Make the loan; hold until repayment or conversion after bankruptcy
- Sizing
- One concentrated loan
How it fails
- Borrower fails and collateral is worth less than expected
- Illiquid
- Legal risk
Data it needs
- private loan terms
- borrower financials
No private-loan data.
How ARCANE uses it
Not drafted as a trade; may help Alpha explain secured-creditor outcomes. Paper only.
Private lending cannot be expressed in a price-based builder.
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, §15.2.3, p. 110 of the SSRN version. Described in our words. Event-driven is ARCANE’s filing, not the book’s.