Sunday, February 8, 2009

Even Better Than Distressed Debt

Boston Red Sox outfielder Manny Ramírez battin...Image via Wikipedia

You can't wear a blazer, eat over-priced breakfasts and network in the investment community without talking Distressed Debt these days. Everyone loves distressed debt. The thinking is that bank debt, junk debt, mezz debt, etc is all trading at huge discounts. If you buy it now, instead of the 5% to 8% rate of return you would have gotten a few years ago, you can make a cool 15% or more. But that's if the economy comes back before the company whose debt you own goes under. Remember, this debt is distressed because the companies who need to pay it back, could go bankrupt. It's a classic example of those with liquidity being able to pick and choose which assets they want, and the weak being forced into selling.

This phenomen isn't limited to the debt world though, and Henry Schulman's blog covers something I've been thinking about, distressed baseball players.  

"We're evaluating the teams right now that might be distressed going into this, what those players look like, the free-agents to be or arbitration-eligible players to be, how much money it is and what positions (they play). Early on we'll have a list. There'll be a hit list we'll be able to form. But we won't be the only team doing that. Any team with flexibility will be able to do that."
There are going to be some amazing bargains out there and I can't wait to see what the Giants do later in the season. They play in one of the biggest markets in the country and have some cash to play with.
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