As a distressed investor, what is different about investing during the current financial crisis?
I had never seen pricing as attractive as we saw last fall and this winter for performing loans – the type of distressed asset we prefer. We acquired debt with an 80% to 95% probability of yielding 25% or more to maturity or to an event [e.g., the bond being called]. In the 5% to 20% chance that we were wrong, and there would be a money default, we would still be okay in a reorganization. Pricing like that was never available before. Another big change occurred in recent years in small bankruptcy cases – those less than $300 million – where administrative expenses became so large that companies were forced to do a prepackaged bankruptcy or its equivalent. In the old days, much could be done through a conventional Chapter 11 even for smaller enterprises. For companies in reorganization, whether in court or out of court, it has never been more expensive. Companies are getting ripped off by professionals – lawyers and financial advisors – and by management like never before. For distresse
