I have noticed a few comments here and there asking for clarity on a number of topics related to distressed debt investing. Each week, I am going to try to answer these questions, so the more comments the better. As you see, this week will be short since we only have two questions. Come on people, don't be shy!
Question: Let's say you want to ride along passively as a small corporate bondholder of a company that just filed Ch 11. If you buy the bonds AFTER the filing date, do you have the same claim rights as those who owned the bonds BEFORE the filing date?
Answer: If you buy bonds after the filing date you will 99% of the time have the same claim rights as those who owned the bonds BEFORE the filing date. This includes the fact that on the filing date the bonds stop accruing interest and therefore the claim is set at some percentage of par. For example, XYZ company could file from bankruptcy on April 1st, when that same company had a bond interest payment due on June 1st. The accrued interest would be part of your claim and traders would quote the bond vs a claim value (i.e. 102.5% or some other similar number). The 1% exception is really to cover my back. I have not seen a circumstance when it is different. Bank debt there could be some differences with rolling up the pre-petition bankruptcy debt into a post-petition DIP and some voting rights.
Question: Are you aware of any free sources to obtain quotes on bank debt?
Answer: I get my bank debt runs daily via the message system on Bloomberg. In addition, if you have access to BondHub, the various dealers will put out a PDF or Excel file weekly with their bank debt quotes. Imperial Capital does the same thing if you can get access to their research. The Wall Street Journal one day a week has a listing of the most liquid bank debt names on their levels. The website www.loanpricing.com has a number of bid / ask charts that you can get on their website.