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Distressed securities
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== Investment strategy == {{see|Private equity#Distressed securities|Valuation (finance)#Valuation of a suffering company}} The distressed securities investment strategy exploits the fact many investors are unable to hold securities that are below [[investment grade]].{{Sfn|Ineichen|2002|page=270}} Some investors have deliberately used distressed debt as an [[alternative investment]], where they buy the debt at a deep discount and aim to realize a high return if the company or country does not go bankrupt or experience defaults. The major buyers of distressed securities are typically large institutional investors, who have access to sophisticated risk management resources such as [[hedge fund]]s, [[private equity firms]] and units of [[investment bank]]s.{{Sfn|Barclay Hedge|2013}}{{Sfn|Steger|2013}} Firms that specialize in investing in distressed debt are often referred to as [[vulture fund]]s.{{Sfn|Blackman|Mukhi|2010|p=49}}{{Sfn|Moore|2014}}{{Sfn|The Guardian|2011}}{{Sfn|Seager|2007}} Investors in distressed securities often try to [[Activist investing|influence the process]] by which the issuer restructures its debt, narrows its focus, or implements a plan to turn around its operations. Investors may also invest new capital into a distressed company in the form of debt or equity.{{Sfn|Barclay Hedge|2013}} According to a 2006 report by [[Edward Altman]], a professor of finance at the [[NYU]] [[Leonard N. Stern School of Business|Stern School of Business]], distressed debt investments earned well above average returns in 2006 and there were more than 170 institutional distressed debt investors.{{Sfn|Altman|Swanson|2007}} These institutions used "very strong and varied strategies including the traditional passive [[Buy and hold|buy-and-hold]] and arbitrage plays, direct lending to distressed companies, active-control elements, foreign investing, emerging equity purchases and equity plays during the reorganization of a firm in bankruptcy".{{Sfn|Altman|Swanson|2007}} The most common distressed securities are [[bond (finance)|bonds]] and [[loan|bank debt]]. While there is no precise definition, [[fixed income security|fixed-income instrument]]s with a [[yield to maturity]] in excess of 1,000 [[basis point]]s over the risk-free rate of return (e.g., [[Treasury security|Treasuries]]) are commonly thought of as being distressed.{{Sfn|Barclay Hedge|2013}} Distressed securities often carry ratings of CCC or below from agencies such as [[Standard & Poor's]], [[Moody's Investors Service|Moody's]] and [[Fitch Group|Fitch]].{{Sfn|Barclay Hedge|2013}}
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