CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt
A distressed-debt investor buys the senior loans of a bankrupt firm at a deep discount intending to gain control of the company through the restructuring process. This approach is most likely referred to as a:
This is a loan-to-own strategy. The investor buys a distressed company's senior debt at a discount and aims to convert it into equity control during restructuring. Mezzanine financing is subordinated debt with equity kickers, and venture lending provides loans to early-stage companies.
- Aloan-to-own strategyCorrect
- Bmezzanine financing strategy
- Cventure lending strategy
Explanation
Buying debt of a distressed firm to obtain equity ownership through restructuring is a loan-to-own strategy. Mezzanine financing is subordinated debt with equity features for healthy firms, and venture lending funds start-ups.
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