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#1
10-20-2007, 11:15 PM
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Investing in Distressed debt
I'm pretty new to investing, but right now seems like it would be a good time to invest in distressed. With the recent crash in sub prime mortages there is plently of it avaible. I'm sure there more to it, but in generall wold now be a good time to invest in it. If yes what would be some good fund to do so in.
I understand that this type of investing, but amount of money I'd be putting up would be pretty insignificant to me. Losing it would not be a big deal. I'm just trying to maximize my ev. 
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#3
10-21-2007, 03:15 AM
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Re: Investing in Distressed debt
[ QUOTE ]
They are low priced for a reason. A lot of the mortgages are worth absolutely nothing. Good luck trying to figure out which ones are worth something and how much. [/ QUOTE ] Are you talking about 2nd mortgages? Because almost every first mortgage has significant value. There are almost no homes that can't be sold for significantly more than foreclosure costs. Even a $300k mortgage on a house that can only be sold for $100k is worth $80k, if foreclosure costs are $20k. If the owner continues to make payments, it's worth $300k.
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#4
10-21-2007, 11:29 AM
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Re: Investing in Distressed debt
[ QUOTE ]
They are low priced for a reason. A lot of the mortgages are worth absolutely nothing. Good luck trying to figure out which ones are worth something and how much. [/ QUOTE ] VERY tough/risky game...even for the Pro's at this time SF [img]/images/graemlins/smile.gif[/img]
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#5
10-21-2007, 04:28 PM
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Re: Investing in Distressed debt
[ QUOTE ]
[ QUOTE ] They are low priced for a reason. A lot of the mortgages are worth absolutely nothing. Good luck trying to figure out which ones are worth something and how much. [/ QUOTE ] Are you talking about 2nd mortgages? Because almost every first mortgage has significant value. There are almost no homes that can't be sold for significantly more than foreclosure costs. Even a $300k mortgage on a house that can only be sold for $100k is worth $80k, if foreclosure costs are $20k. If the owner continues to make payments, it's worth $300k. [/ QUOTE ] A lot of the low priced CDO's, etc. have exactly that. From an 80/20 or 80/10/10 mortgage, the 20 or the middle 10 is mixed in with other mortgages. Those are often worthless. It's very hard for the average retail investor to put a proper value on the whole tranche.
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#6
10-21-2007, 05:55 PM
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Re: Investing in Distressed debt
HCD is an ETF that owns high yield/distressed corporate bonds and syndicated bank loans.
Per ETFconnect, on August 30th HCD's NAV was $14.08, an 11% discount to the stock's $12.48 closing price that day. http://www.etfconnect.com/select/fun...sp?MFID=179546 This past Friday, HCD closed at $11.42. Unless they marked down the debt in the portfolio, the discount to NAV is now 18.9%. Without knowing what's in the portfolio, on the surface that appears to be a nice margin of safety. In addition, it recently paid a quarterly dividend of $0.2625. Assuming that's sustainable, HCD provides an annual current yield of over 9%. Assuming the current discount to NAV is 19%, and it goes away over the next year, the potential total return is 28%. And if the portfolio gets marked up, the NAV goes up, and the potential return is even larger. If interested, poke around their website. The last conference call transcript was pretty interesting reading: http://www.highlandhcd.com/Literature.aspx
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