Glossary - Vulture Fund
A vulture fund is an investment fund that seeks out and buys securities in distressed investments, such as high-yield bonds in or near default, or equities that are in or near bankruptcy. The strategy of vulture funds is to profit from buying such distressed securities at a significant discount and then realizing a profit by restructuring, enforcing, or selling them once the entity recovers.
Also known as
- Distressed debt funds
- Opportunistic funds
Use cases examples
- Legal restructuring agreement: The vulture fund was a major party in the restructuring agreement, using its significant holding of the distressed company's debt to influence the terms in its favor.
- Bankruptcy court filings: Vulture funds were among the largest creditors listed in the bankruptcy filings, having acquired the distressed debt from original lenders at a fraction of its face value.
Considerations for investors
- Investors should conduct thorough due diligence on the distressed assets, understanding the risks and potential for recovery or restructuring.
- Investors need to have expertise in legal and financial restructuring to navigate the complexities involved in turning around distressed assets.
Considerations for founders
- Be aware that engaging with vulture funds can lead to loss of control over the company, as these funds often seek significant influence or ownership in exchange for financing.
- Consider the long-term implications of the debt or equity structure proposed by a vulture fund, as their terms may be more aggressive than traditional financing sources.
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