Whether it's the tightening of the credit markets, a
regulatory shift, margin erosion due to influx of competition, or
structural changes such as in the
retail industry as of late: there are plenty of reasons that
get companies into deep water and create opportunities for
distressed debt investing in Canada. The more difficult question is
how to identify, evaluate and capitalize on companies in
distress.
Indicators of financial distress
The most obvious indicator of financial distress, at least in
the public markets, lies in market trading prices. A distressed
company will typically trade at below $1 per share with bond prices
discounted by 20 to 50% depending on the severity of the situation.
Another clue is the deterioration in the credit rating of a
company; however, rating agencies tend to be slow in adjusting a
rating due to the company's financial circumstances. It is also
important to note that a given rating is essentially the rating
agency's best
