Distressed Debt

Distressed debt refers to securities, like bonds or loans, issued by companies that are struggling financially and are at risk of defaulting on their payments. These securities often trade at a significant discount because investors are concerned about the company's ability to repay. Savvy investors may purchase distressed debt, hoping that the company will recover, leading to a profit when the debt's value rises. However, investing in distressed debt carries high risks, as the company may end up going bankrupt, potentially leading to substantial losses for investors.