Introduction to investing in distressed companies

Abstract

The global financial crisis (2007-2008) left behind a large number of struggling companies suffering from a challenging macroeconomic environment, shrinkage of customers’ purchasing power, delays in receivable payments, bankruptcy of suppliers and the effects of credit crunch and austerity measures. Amid this discouraging market environment, investment opportunities continued to exist. On the one hand, the weakening economics created a market opportunity for those equity investors looking for short positions, but on the other hand, it also represented an opportunity for distressed debt investors, whose activity substantially increased following the years of the financial crisis. This thesis introduces the fundamentals of financial valuation and analyses a specific investment opportunity, Eco-Bat. The aim of the thesis is to provide a thoughtful approach to whether such company could be worth considering as an investment, and if so, where in its capital structure should one invest and at what price to achieve a certain return.