Distressed debt refers to bonds or loans issued by a company facing financial difficulties. Due to the increased risk of default, distressed debt is often available at a discount to its face value. This can offer attractive investment opportunities for those willing to tolerate the added risk.
Distressed debt can arise due to various factors, such as economic downturns, mismanagement, or industry-specific issues. When a company experiences financial distress, its debt may become distressed as investors become concerned about the company’s ability to repay its obligations.