Which securities are commonly used in distressed investing?

In the context of distressed investing, public equity and debt are frequently utilized because they present opportunities for significant returns when companies or assets are undervalued due to financial troubles. Distressed investing focuses on acquiring securities of companies that are in financial distress, bankruptcy, or are otherwise undervalued because the market anticipates poor performance.

Public equity allows investors to buy shares at a low price, betting on the recovery or restructuring of the company to enhance their value over time. Likewise, investing in distressed debt can yield high returns if the investor successfully navigates the complexities of the financial restructuring process. Distressed debt might sell at a discount, which can offer an attractive entry point for investors who believe the company will ultimately recover.

Other options like government bonds and commodities, real estate and derivatives, or only new issue equity do not typically feature the same direct exposure to corporate distress situations. These securities might not capture the unique dynamics and potential for high returns associated with distressed firms in a way that public equity and debt directly do. Therefore, public equity and debt are the most relevant and commonly used securities in distressed investing strategies.