But for now, let us use a hypothetical example. Let's say I am involved in distressed debt investing. A company that I am looking at has 100M of EBITDA. EBITDA is Operating Earnings + Depreciation and Amortization - non recurring one time items. And let's say I think this company is worth 5x EBITDA, therefore I think that if the entire enterprise was sold, someone would pay somewhere around 500M. Now let's say that this company, we will call it Overlevered Co. has 2 billion dollars of debt.Ok. Now let's say in this particular example, the company decides to pursue a Chapter 11 reorganization. In distressed debt investing, we are familiar with this process as we sit in the Delaware courts often. Unfortunately, many of us are not lawyers, so we rely on counsel or our judgement in helping us make better investment decisions.
- The lawyers and other admin, who get paid first
- The bond holders
- The equity holders