Distressed Debt

The debt obligations of a business facing financial distress, default or bankruptcy. The business may sell its debt to investors at a discount to raise the capital required to remain solvent or make improvements to restore financial viability such as restructuring its debts. Distressed debt typically offers higher yield and return potential than sponsor-backed or non-sponsored debt due to the urgent need for capital and the complexities of the specific financial distress.  

Distressed debt lenders are often deeply involved with the borrower. Lenders typically aim to provide capital relief as well as expertise that can help management make the business profitable. Lenders can also accumulate debt in a troubled company and then take it over by receiving equity through the bankruptcy process.