CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt
Which private debt strategy is best described as providing capital to a company in financial difficulty, often with the aim of gaining ownership or control through a restructuring?
Distressed debt is the strategy that targets companies in financial difficulty, often buying their debt at a discount and seeking ownership or control via restructuring. Venture debt funds growth companies and mezzanine is subordinated financing, neither focused on restructuring.
- AVenture debt
- BMezzanine debt
- CDistressed debtCorrect
Explanation
Distressed debt investors buy or originate claims on troubled firms and may convert debt to equity in restructuring to gain control. Venture debt serves early-stage firms and mezzanine sits between senior debt and equity in healthy firms.
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