Distressed Securities: Analyzing and Evaluating Market Potential and Investment Risk Distressed Securities: Analyzing and Evaluating Market Potential and Investment Risk
By Edward I. Altman (editor)
1999/02 - Beard Books
1893122042 - Paperback - Reprint - 244 pp.

A definitive guide to the market of distressed companiesí debt and equity securities.

Publisher Comments

Category:  Bankruptcy & Restructuring

This title is part of the Vulture Investing list.

Of Interest:

Bankruptcy & Distressed Restructurings: Analytical Issues and Investment Opportunities

Bankruptcy Investing: How to Profit from Distressed Companies

Distressed Investment Banking: To the Abyss and Back 

Logic and Limits of Bankruptcy Law

The Executive Guide to Corporate Bankruptcy

Why Companies Fail: Strategies for Detecting, Avoiding, and Profiting from Bankruptcy

In today's volatile business climate, with increasing numbers of bond defaults and Chapter 11 bankruptcy filings, the market for distressed companies' debt and equity securities continues to capture the interest and imagination of the investment, legal, banking and advisory communities. The profit-making potential of securities selling at discount prices makes distressed securities very attractive to the educated and aggressive investor. In this book, the author provides a definitive guide to this market, and applies his considerable analytical ability and practical experience to specific types of distressed securities, including proven strategies for bank debt, defaulted private trade debt, defaulted straight debt securities, and "fallen angels."

Relevant but dated, October 4, 2000 
Reviewer: A reader from Berkeley Heights, New Jersey United States (
Very good empirical material from the early stages of the market. The book is dated though since it has not been updated post the great increase in the size of markets. New classes of distressed corporates (telecoms & possibly future current dotcoms ?), new markets (Japan/Asia), new value extraction methods (CBOs) etc. which have materialised in the past few years need to be addressed as well, both in terms of market developments and further empirical evidence.

Empirical-driven research well-presented, January 28, 2000 
Reviewer: A reader from Los Angeles, California (
A no-nonsense, cut'n dry overview of Mr. Altman's extensive empirical research on the distressed securities market. His statistical procedures and index calculations offer a nice illustrative summary of this niche market, albeit his sample size is quite limited and a handful of his models are rendered inconclusive. However, this book is geared for someone having a keen interest in distressed securities, in particular. Definitely not for someone who wishes to gain an introductory understanding of general finance. Personally, the one deficiency in the book is its dryness.

Edward I. Altman received an M.B.A and a Ph.D. in Finance from the University of California, Los Angeles. Dr. Altman is the Max L. Heine Professor of Finance at the Stern School of Business, New York University. He has an international reputation as an expert on corporate bankruptcy, high yield bonds, distressed debt, and credit risk analysis. He has been visiting Professor abroad and has received several international awards. Dr. Altman is one of the founders and an Executive Editor of the Journal of Banking and Finance, has authored or edited over twenty books, and has written more than one hundred articles for scholarly finance, accounting and economic journals.

Other Beard Books by Edward Altman

1 Background of the Distressed Securities Market and Summary of Major Findings 1
. Size of the Market 2
Supply of Distressed Securities 3
Distressed Security Investor Profile 4
Returns on Distressed Securities Investment Strategies 6
Market Importance and Outlook 8
2. Supply of Distressed Securities 12
Bankrupt Companies and Business Failures 12
Junk Bond Defaults 13
Distressed Securities by Yield 17
Publicly Traded Debt Securities 18
Private Debt 18
Trade Debt Claims 20
Conclusion 23
3. Demand for Distressed Securities 25
Questionnaire Results 25
Involuntary Investors 27
Providers of New Capital-DIP Financing 27
4. Price Levels and Recovery Rates on Defaulted Securities 31
Capital Structures 32
Recovery Rates 32
5. The Market for Defaulted Private Trade and Bank Debt 37
Public and Private Debt 38
Markets for Public Debt 39
Bankruptcy Rules 39
Judge Lifland's Court 43
Proposed Changes to Rule 3001 (e) (2) 44
Direct Assignments 44
Participations 47
Trading Pre-and Post-Petition Bank Debt 47
Unregistered Securities 48
Representations and Warranties 49
Opportunities for Profit 50
Other Regulation 50
Heightened Bankruptcy Court Supervision 51
Functions of the Private Debt Market 52
Benefits for the Seller 53
Benefits for the Buyer 54
6. The Performance of Distressed Securities 55
Target and Minimum Rates of Return 56
Historical Performance: Review of Literature 57
New Test of Distressed Debt Investment Strategies 61
The Zeta (r) Credit Evaluation Tool 69
Investing in Distressed Debt Using ZETA (r) Scores 71
Junk Bond Portfolio Selections 71
How Can Rigorous Credit Analysis Help? 78
The ZETA (r) Test 78
7.  An Index of Defaulted Straight Debt Securities 83
A Defaulted Straight Corporate Debt Index 84
Market Value Weighting and Return Bias 90
Size and Returns 90
Diversification Benefits: Correlation with Other Strategies 91
8. Fallen Angels: Are They All Created Equal? 93
Purpose of the Research 95
Evolutionary vs. Revolutionary Downratings 97
Some Basic Questions for Investors About Fallen Angels  98
Prior Studies on Fallen Angels 99
Empirical Results 101
Total Return Performance 109
Credit Deterioration vs. Event-Risk 109
Pre-Downrating Loss in Wealth 110
Utilities vs. Non-Utilities 112
BB vs. B-Rated Downgrades 113
Relative Performance: Excess Return Analysis 116
Event-Risk vs. Credit Deterioration 118
Utilities vs. Non-Utilities 118
BB vs. B 118
Downtick Perfomance 121
Concluding Remarks 121
9. Default Rates and Fixed Income Performance 123
Traditional Measures of Default Rates and Losses 125
Default Rates 126
Default Losses 126
Questions Related to the Traditional Method 132
Mortality/Aging Approaches 133
Comparison of Results 134
Aging and Defaults 138
Returns 140
Blume and Keim Study 142
Cheung and Bencivenga Study 145
Positive Spreads 145
And Now for the Future 146
A Different Kind of Simulation 148
Concluding Remarks 151
10. Outlook and Conclusion 155
Supply Forces 155
Estimating Supply from the Z-Score Bankruptcy Indicator 156
Z-Score Model Description 157
Demand Forces 160
Questionnaire Response on the Outlook 162

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