Distressed Private Equity: Deals, Firms, and Salaries

What is Distressed Private Equity?

• Involves investing in troubled companies during bankruptcy or restructuring to turn them around.
• Similar to standard private equity but requires broader skills (credit, capital structure, bankruptcy process).
• Includes strategies such as distressed debt trading, non-control and control strategies, turnarounds, and special situations.

Strategies in Distressed Private Equity

1. Distressed Debt Trading
   • Buy debt at a discount and sell when prices rise.
2. Distressed Debt Non-Control
   • Buy debt to gain influence in restructuring.
3. Distressed Debt Control
   • Buy controlling stake in the company post-restructuring.
4. Turnaround
   • Acquire equity, restructure the company pre-bankruptcy.
5. Special Situations
   • Involves spin-offs, asset sales, recapitalizations, and being a lender of last resort.

Evolution of a Distressed Deal

• Example: ABC Carpet, which took on excessive debt for expansion.
• Strategies include trading debt securities based on market and financial scenarios.

Valuation and Financial Modeling

• Differences from standard PE: operational and event scenarios, capital structure focus, operational changes, extensive due diligence.

Who Gets Into Distressed Private Equity?

• Common backgrounds: restructuring banking, turnaround consulting, bankruptcy law, distressed debt trading.
• Difficult for new grads to enter without experience.

Top Distressed PE Firms

• Known firms: Oaktree, Cerberus, TPG, Centerbridge, Fortress, PIMCO, Apollo.
• Strategies vary from controlling transactions to acting as lenders of last resort.

Salaries, Bonuses, and Carry

• Similar compensation to PE at junior levels; potential for higher senior pay due to carried interest.
• Performance-related fluctuations and long-term vesting.

Exit Opportunities

• Broad credit-related roles, but not suitable for non-credit fields like venture capital.

Pros and Cons

• Pros: Interesting work, diverse exit opportunities, broad skillset, counter-cyclical.
• Cons: High stress and hours, tough entry, compensation variability, not a recession shield.

Conclusion

• Offers advantages but not a universal solution; requires relevant experience and interest in diverse roles.
• Recommended to engage with simple deals and case studies for those interested.