Editing Distressed securities (section)

==Risk management==
By 2006, the increased popularity in distressed debt [[hedge fund]]s led to an increase in the number of benchmark performance indexes.{{Sfn|Altman|Swanson|2007}} Highly specialized risk analysts and experts in credit are key to the success of alternative investments such as distressed debt investment. They depend on accurate market data from institutions such as [[Market (economics)|CDX High Yield Index]] and [[India]]-based Gravitas, which combines risk management software with sophisticated risk analysis using advanced analytics and modeling. They produce customized scenarios that assess the risk impact of market events. Gravitas uses [[IBM]] Risk Analytics technology (formerly Algorithmics), which is also used by major banks, to help hedge funds meet regulatory requirements and optimize investment decisions.{{Sfn|Groenfeldt|2013}}

When companies enter a period of [[financial distress]], the original [[Holding company|holders]] often sell the debt or equity securities of the issuer to a new set of buyers. Private investment partnerships such as [[hedge fund]]s have been the largest buyers of distressed securities.{{Sfn|Barclay Hedge|2013}} By 2006, hedge funds have purchased more than 25% of the high-yield market's supply to supplement their more traditional defaulted debt purchases.{{Sfn|Altman|Swanson|2007}} By 2006, "new issues rated CCC to CCC− were at an all time high of $20.1 billion".{{Sfn|Altman|Swanson|2007|page=17}} Other buyers include [[brokerage firm]]s, [[mutual fund]]s, [[private equity]] firms and specialized debt funds such as [[collateralized debt obligation|collateralized loan obligations]].

The [[United States]] has the most developed market for distressed securities. The international market, especially in [[Europe]], has become more active in recent years as the amount of [[leveraged lending]] has increased, capital standards for banks have become more stringent, the accounting treatment of [[non-performing loan]]s has been standardized, and [[insolvency law]]s have been modernized.{{when|date=September 2012}}

Typically, the investors in distressed securities must make an assessment not only of the issuer's ability to improve its operations, but also whether or not the restructuring process (which frequently requires court supervision) will benefit one class of securities more than another.