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The Distressed Debt Cycle
The opportunities for top returns in distressed debt come and go. What causes the fluctuations in distressed debt cycles?
- Risk averse investors limit quantities issued and demand high-quality.
- High-quality issuance leads to low default rates.
- Low default rates cause investors to become complacent and risk tolerant.
- Risk tolerance opens investors to increased issuance and lower quality.
- Lower quality issuance eventually is tested by economic difficulty and gives rise to increased defaults.
- Increased defaults have a chilling effect, making investors risk averse once more.
- The cycle restarts.
Each event in a cycle causes the one that follows.
Jeremy Silva
Jeremy Silva lives near San Francisco with his wife and son. He is a writer, blogger, and personal investor. He is passionate about education, personal development, project management, and investing. His blog has over 100 book summaries on many topics including investing, self-help, and business. You can click on the link to read some interesting book summaries on Jeremy’s website (https://jsilva.blog/book-summaries/).