Distressed Debt
Private Equity glossary · Private Equity Fundamentals
Definition
Debt trading at a significant discount to par due to issuer financial distress.
Distressed Debt in plain English
Distressed debt is the debt (loans or bonds) of a company in serious financial trouble, trading at a big discount — meaning investors will sell you a claim to be repaid $100 for far less, maybe $40, because they're scared the company can't fully pay them back. ('Par' just means the full face value the debt is supposed to repay.) Specialists buy that cheap debt betting the company will recover, or that even in a worst-case breakup they'll collect more than the $40 they paid. It's like buying a $100 gift card to a shaky store for $40 — risky if the store closes, but a great deal if it survives or if its assets alone are worth more than you paid.
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