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Q/A with Enrique Abeyta: What is a Distressed Bond?

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What is a “Distressed Bond”?

Well, the word DISTRESS could probably be used on just about ANY asset that is traded across the last few weeks!

In particular, a distressed bond or distressed debt refers to bonds of companies where there is a perception that bondholders will not get paid back all of their money.

Remember a bond is essentially a loan. You lend the company $100 and expect to get $100 back plus some interest.

Sometimes, though, companies are in a position where they can’t pay back the full $100. In this case, the bond will often trade below the $100 value or “par” and becomes a “distressed” bond.

It is quite normal for $100 par bonds to trade between $85 and $100 as the normal part of volatility around risk and interest rates.

Anything below $80, however, and there is a perception that there is a real material risk of getting the full $100 back.

There haven’t been a lot of distressed bonds in the last few years but the next few months could get interesting.

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Hint: This asset management company has two subsidiaries that focus on containerships and flexible power plants. Their cargo subsidiary runs 134 containerships with 67 more under construction while their power subsidiary operates in 35 countries providing custom power solutions.

 

 

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