Strategies · Library · Distressed assets
§15.2Event-driven
Active distressed investing
Buy distressed assets in order to gain some control over the company's direction, either through Chapter 11 or an out-of-court deal with creditors. Profit comes from increasing the value of the reorganised firm.
- Asset class
- Distressed assets
- Held for
- Years
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Distress of the target and the stage of its restructuring
- Entry and exit
- Buy in before or during restructuring; exit when the reorganised company is sold, listed or paid out
- Sizing
- Concentrated in a few targets
How it fails
- Legal and process risk
- Needs large stakes and expertise
- Illiquid
Data it needs
- bond and loan prices
- court filings
- creditor structure
No debt, filings or private-loan data.
How ARCANE uses it
Not directly tradable by ARCANE. Alpha could use it to explain how a restructuring Call might resolve. Paper only.
Requires control stakes in private claims; cannot be a long-only price rule.
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, p. 109 of the SSRN version. Described in our words. Event-driven is ARCANE’s filing, not the book’s.