Glossary - Distressed Assets
Distressed assets are assets that are put up for sale, often at a reduced price, because they are in or near foreclosure or bankruptcy, or are otherwise under financial strain. This term broadly encompasses any asset that is underperforming or experiencing financial distress, including but not limited to, companies, real estate, or financial securities.
Also known as
- Distressed investments
- Troubled assets
Use cases examples
- Bankruptcy Filing: The company's assets were considered distressed assets following its Chapter 11 bankruptcy filing, leading to a liquidation sale.
- Loan Agreement: The collateral pledged by the borrower became a distressed asset after failing to meet the financial covenants outlined in the loan agreement.
Considerations for investors
- Investors should conduct thorough due diligence when considering investment in distressed assets, as there may be underlying issues that could complicate the recovery process.
- Investors need to be aware of the legal and financial frameworks surrounding bankruptcy and restructuring in the jurisdictions of the distressed assets.
Considerations for founders
- Understanding the implications of distressed assets is crucial for founders, as it may affect the company’s ability to secure funding or impact its valuation.
- Founders should consider the potential for turnaround opportunities with distressed assets but be mindful of the complexities and risks involved in such transactions.
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