# Distressed Debt

*Corporate Finance & M&A — Finicade finance glossary*

Distressed debt investing buys the obligations of troubled companies at deep discounts, betting the recovery exceeds the price. It's fundamentally a legal analysis rather than a financial one: what matters is where a claim sits in the waterfall and what the collateral covers. The loan-to-own version deliberately buys the fulcrum security — the tranche that converts to equity in a reorganisation — to end up owning the business.

**Also known as:** distressed investing, loan-to-own, vulture investing

**Related terms:** [Chapter 11 Bankruptcy](https://finicade.com/glossary/chapter-11-bankruptcy), [Recovery Rate](https://finicade.com/glossary/recovery-rate), [High-Yield Bond](https://finicade.com/glossary/high-yield-bond), [Senior vs Subordinated Debt](https://finicade.com/glossary/senior-vs-subordinated-debt), [Covenant](https://finicade.com/glossary/covenant)

Source: https://finicade.com/glossary/distressed-debt