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The Recorder: Legal Considerations for Distressed Debt Investors

August 26, 2020

O’Melveny partner Jennifer Taylor and associate Maiah Parks co-authored this The Recorder article on the key legal issues potential investors should consider before acquiring the debt of distressed companies.

“There are serious legal and financial risks in distressed debt investing—corporate reorganizations might fail or certain individual investments might be subject to attack, and as a result, the hoped-for return on the distressed investment fails to materialize,” Taylor and Parks write. “The distressed debt cycle is countercyclical in that opportunities generally increase as the economy slows. The nature of distressed debt inevitably leads to risk due to mark-to-market fluctuations and certain risks from a general widening of credit spreads. Importantly, there is a limited liquid market for debt securities. Interest rates, the price of the securities and participation by other investors can all affect the value of the purchased debt, which are often beyond the control of the individual investor.”

The Recorder subscribers can read the full article here.