Distressed assets

Distressed assets are instruments � such as loans; mortgages; CLOs, or collateralised loan obligations; and ABS or asset-backed securities and CDOs referencing RMBS (or residential mortgage-backed securities) � that are regarded as non-performing and consequently trade at a discount.
Distressed assets can be attractive to investors, such as specialist credit opportunity funds, hedge funds and even real money managers � all of whom may be advised by portfolio optimisation or structured credit advisory firms � as their discounted value may either all or in part be a result of market dislocation and thereby may provide investment or trading opportunities, either with or without restructuring or work-out. The idea is that if the asset is held to maturity, it will eventually return to par. However, valuing such assets is complex and requires analysing the underlying cashflows across a number of different scenarios.