ICELAND - A GLIMPSE AT THE FUTURE?

A few years ago we took a great trip to Iceland. We hopped around the island hiking and traveling to remote locations from black sand beaches to an inactive volcano rim to tiny towns tucked in nordic style locations on the water.

The year after, Iceland went bankrupt. The Cliffnotes version is that Iceland's three largest banks offered above market interest on deposits, borrowed in the public markets and lent the incoming funds out in a very aggressive manner to speculative borrowers.

The overleveraged borrowers who overpaid for assets all of a sudden could not service their debts. Then the great asset bubbles deflated and the borrowers could no longer pay back the banks. The three largest Iceland banks, that somehow grew to 10 times the size of Iceland's GDP, failed.

The Iceland kroner crashed as did the banks and the Icelandic economy. Google the Financial Times for a good series on Iceland. One bank was an internet bank, Icesave. Icesave had attracted over $5 billion of deposits from UK and Dutch depositors. Of course when the banks failed, the tiny Iceland deposit insurance fund was instantly bankrupt.

What did the UK and Dutch governments do? They reimbursed all their citizens deposits with Icesave? Why would they do this? They were not UK and Dutch obligations. Hey, all those "innocent" depositors were getting an above market interest rate. Did they think there was no risk?

So, the UK and Dutch governments now want Iceland to repay the $5 billion. In today's jaded financial world, $5 billion sounds like a rounding error. It is only $5 billion. Let me show you how much $5 billion is to Iceland.

Iceland only has 300,000 citizens. That's right, 300,000; about the size of Cincinnati. So $5 billion amounts to $18,000 for each citizen. Not each family, each citizen. So on Saturday, the citizens of Iceland voted on whether or not to ratify an agreement made by their government to repay the UK and Dutch governments. They voted 93% against paying them back. 93%!!!!

The UK and Dutch governments have pledged to keep Iceland out of the EU. The IMF has threatened to hold back more loans to try to stop Iceland's freefall. The threats fell on deaf ears.

I can hear the Icelanders at the polls now. 'I have a family of four. I am not voting to take on $76,000 of debt because some bankers took deposits, paid themselves big salaries and then lent the money to companies that couldn't pay them back. So they won't let us into the EU. Big deal. And so what the IMF won't lend us money. The money Iceland borrows is just to repay the money all the banks borrowed and threw away.'

This referendum appeared to be a way the Icelanders could finally show how frustrated and angry they are at all involved. The way out? That will take a much longer blog.

But here is today's thought. How many more countries will go through an Icelandic event?

Cheers

SHOULD GREECE SELL ISLANDS?

There appears to be some in the German government that think that Greece should sell some of its islands to raise money to reduce debt. Once again sounds like creditors dealing with a financially troubled company. Sell your non-core assets. This will not be the last time or the last country where you will hear this.

I expect to hear suggestions such as these for the next 10 years. What do I hear for this Mediterranean island? These works of art? This slightly used military hardware?

Stay tuned.

SOVEREIGN DEBT & THE EMPEROR WITH NO CLOTHES

There has been much written and spoken about the financial state of various countries, especially Greece at the moment. I received an email from a friend regarding a one page piece written by George Soros on the situation which on one hand offered a solution and on the other hand admitted the solution wouldn't work.

When I returned from the golf course, where I have successfully raised my handicap (it is easier than lowering it), I sent off this rambling reply.

As for the Soros piece, I am afraid the situation is too complicated and interrelated to address in a one pager. We appear to live in a world where the vast majority of the countries on the planet are overlevered by any measure and especially against GDP. Think of the situation as an industry where most of the players have too much debt and supply far outstrips demand (only much more complicated.)

The past two decades of globalized growth were fueled by easy and cheap credit which overstated global demand and inflated asset values as we all know now. Add to that the large recession we have been enduring (oh, that's right it is over, I forgot) and you get worldwide deleveraging of the consumer, albeit involuntarily, and unprecedented leveraging by governments to mitigate the short term effects of the recession.

The various governments had to print money (stimulus programs) to replace trillions of credit which disappeared due to the Lehman failure. (Please thank the US and UK governments for this.)

Some countries have and will blow up. See Iceland for a small but meaningful story of asset bubbles and overleverage. Following in short order, Dubai, Greece, Spain, Ireland, Portugal, Italy, Eastern European countries, Baltic countries and oh yea, Argentina which still has its leftover debt problems.

Behind the curtain is the UK. The UK has massive levels of consumer debt; much more than the US. This will restrain the consumer from spending and spurring the growth required to address the problem. The UK will have to push the pound down to import customers from other countries to be the UK's consumer. Good luck.

So, back to our troubled industry of broken countries (technical term). All these overleveraged countries need growth like troubled companies need sales. However, their infrastructures assume credit driven growth which isn't on the horizon. In fact they are all relatively shrinking as tax revenues have nose dived everywhere. As a result, they will have to cut expenses (read 'formerly essential services'). This will lead to anywhere from protests to riots (again see Iceland and Greece).

Interest rates are artificially low right now. Personally, I see this as a transfer of wealth from savers (getting nothing for their money) to borrowers (paying nothing for their money). These low interest rates have propped up asset values somewhat because 'what else can you do with your money?' if you have any. Asset values have also been propped up by convenient accounting changes to mark to market accounting which is further propping up commercial real estate and the banking industry.

Moreover, the current interest rates are not indicative of the true credit risk of these countries. The low rates are a stop gap to stop the recession (I forgot again that the recession is over). I see devaluations and hyperinflation in the future. This is the time honored way financially troubled countries deal with their debt when they can't pay back the debtholders.

Finally, the US continues to skate by as the biggest debtor nation on the planet (think the emperor with no clothes). Curiously, not only is there no plan in sight to reduce the debt, there isn't even a plan to stop the debt from growing. And this is the world's reserve currency? Only because all the other currencies are worse.

More to follow in the future.

CEO AS CHIEF LISTENING OFFICER

Pretty good comments to ponder in this Forbes Article. A former CEO, A.G.Lafley of Proctor & Gamble, speaks briefly about how to listen to your various stakeholders. He lays out six steps.

1. Pay attention

2. Suspend judgment

3. Reflect

4. Clarify

5. Summarize

6. Share

I have a little piece on #5 in our book. It is on page 133 and entitled, "Let Me Repeat it Back to You". This is a tool that I have used for many years. I used it with co-workers, clients, company personnel all the way up to the CEO/owner level.

I would simply listen to what someone was saying and then I would say, "Let me repeat it back to you to make sure that I understand what you said." It is a surefire way to ensure that I understand what is said and to make the other person know that I was listening.

When I raise this at our MBA sessions, this gets more flack than anything else Gail and I say. People have said that it sounds condescending or trite or just plain ridiculous. I am always surprised at that reaction because I have used this tool thousands of times without any negative feedback, other than my son rolling his eyes wondering how he got into this conversation in the first place.

It is all about where you come from when you speak. If you are genuinely trying to close the loop and make sure you understand, people will get that. On the other hand, if you are being condescending, they will get that.

Every once in a while, I ran into potentially confrontational people who would say something like, "don't you understand what I just said?" I would reply, "I think I understand but I would like to confirm my understanding. You don't want me to go down the wrong road and waste time do you?"

I think from the feedback, some people are reluctant to incur the ire of the less enlightened boss and take the chance that they know exactly what their boss wants. Here is the problem though, the same person you are reluctant to repeat it back to is the same person that has done a poor job explaining what they want you to do. They go hand in hand.

Repeat it back or take the consequences of 'doing what they asked for but not what they wanted.'

Cheers, Mike

SERIOUSLY, WHERE IS THE BLOG?

Recently someone asked me, what happened to the blog? I gave some lame explanation like, 'you can't believe how much time doing nothing takes'.

But this morning, I was looking at a golf blog, wegoblogger31.com to revisit pictures about a golf course in Colorado. The author recently wrote a book about a golf addict (himself and two friends) for other golf addicts. As I was looking through his blog there was a list of blogs he follows. It was a short list as these lists go.

But much to my shock, there was "Excuse Me Leaders" in the list. I thought hmmm, how did he find out about this blog that Gail and I have kept so well hidden?

So, I figure since I really am doing nothing that I should write a few more posts and see if anyone cares. You are hereby forewarned that I will start writing on a "as the spirit moves me basis". So use this time to delete the blog from Google Reader or whatever while there is still time.

Cheers, Mike

A FRAUD WITH AN EXIT STRATEGY

Go figure, according to the NY Times, a key figure in the Swiss banking tax evasion matter has been sentenced to 4 years in a prison. He is also applying (suing?) for a whistleblower's award of billions of dollars based on the IRS collection of taxes based on the information he gave.

He is apparently trying to sneak through a small loophole. His attorney appears to be very pleased with himself and is looking forward to arguing the matter. Should the attorney really be proud of himself for championing this effort? Go figure.

Cheers, Mike

SOMETIMES, THE BEST ACQUISITION IS THE ONE YOU DON'T MAKE

In the troubled company advisory world, failed mergers and acquisitions provide a steady stream of work. Many spreadsheets are used to support acquiring a company rather than growing organically. After all, do you know how long it takes to grow organically? Way too long in this digital age.

So it is somewhat refreshing to see a management team decide that a planned acquisition just may be more than they can handle. The Koenigsegg Group in Sweden had originally planned to acquire the struggling SAAB franchise from GM. The definition of 'struggling'? SAAB has not been profitable in any year that it has been owned by GM.

Koenigsegg is a niche high end, low volume auto manufacturer. They looked at this acquisition, with the help of the Swedish government, as a way to step up in size. Fortunately for them, the pieces were slow to fall into place and finally someone there must have said, "can we really handle this?" The answer to this question apparently was 'no'. So, Koenigsegg has backed out of the purchase.

So, now what happens to SAAB? As the WSJ article says, SAAB accounts for only 1% of the sales of GM and it requires billions to be competitive. Will they make the right decision? Let's see how their new board of directors handle this one.

Cheers, Mike

THE PATRIOTS & RISK AND REWARD

Every leader is faced with decisions that require her/him to weigh the risks and rewards of key decisions. Usually a leader first looks at the risk. What is the level of the risk? If it is a high risk, the leader must carefully weigh the risks, the rewards and less risky options to arrive at the correct course of action.

Last night I watched incredulously as at the 2 minute mark of the New England Patriots / Indianapolis Colts game, the Patriots' leader chose the extremely high risk move of going for a first down on fourth and two at the Patriots' 28 yard line.

The risk was that if the Patriots failed to get the first down, the Colts would only have to go 28 yards for a game winning touchdown. Such a failure would leave the Colts with a very high probability to score a touchdown. The reward was probably a win for the Patriots. But the risk was probably a loss.

This is the point in time when the leader must weigh all the options. Yes, the Patriots offense is superior to its defense this year. And yes, they have made first downs on fourth and short in their own territory other times this year. But, if they punt the ball and gain a net forty yards, the Colts have to go 70 yards for a touchdown, not 28. The odds of a touchdown by the Colts, while entirely possible with their star quarterback Peyton Manning, are much lower than from the 28.

A failure at the 28 yard line would be catastrophic disaster. It was basically a bet the ranch bet that only teams losing at that point in time would make. Unprecedented for a winning team to make such a bet and unlikely for another team to try.

So was it the leader's supreme confidence in his offense? His lack of confidence in his defense? (And his lack of a vote of confidence that they couldn't prevent a touchdown at the end of the game from 70 yards.) Or was it the unbridled arrogance of the leader?

Cheers, Mike

CIT, BACK TO REAL BANKRUPTCIES

It is good to see that troubled companies are back to following the rules. CIT has actually filed for bankruptcy and the matter is following the time honored rules of Chapter 11 and not the Treasury dictated rules of auto bankruptcies past.

In the absence of a government bailout, the various stakeholders are acting in their own best interests and trying to maximize the value of the company. How novel. The appropriate debtholders and third-party lenders extended more loans on commercially reasonable terms.

CIT essentially filed a pre-packaged plan of reorganization. This means that over 50% of the number of claimants representing over 67% of the dollars in each class already agreed to the plan of reorganization. These are the required levels of support for a plan to pass in bankruptcy. The bankruptcy was necessary because CIT couldn't get 100% of the debtholders to agree to the plan.

By the way, business bankruptcies increased in October from September. Look for more filings to occur in commercial real estate and retail. As banks continue to increase profits by getting funding for free, they will be less inclined to extend and pretend such loans are good.

Cheers, Mike

GALLEON, HEDGE FUND IN CRISIS?

On Friday, the founder of Galleon was arrested and charged with insider trading. Put aside whether he is guilty or innocent. The remaining managers of the fund have to deal with the resultant crisis.

In a crisis such as this, the remaining managers must decide what individual or small group of individual should be in charge of the fund in the interim. They must realize that the fund is a separate and distinct entity from its founder. Each party will have their own legal issues to address.

Next the management must get the right team on board. This will include at least, special counsel, a crisis public relations firm and a financial crisis expert. One part of the management team should be dedicated to dealing with the crisis and one part of the management team needs to address the day-to-day operations of the fund.

All of the stakeholders have to be identified and addressed. The stakeholders will include, investors, employees, lenders, companies invested in by the fund, SEC, state regulatory agencies including the attorney general, and other parties.

The communications from the firm must be carefully managed and critically previewed with counsel. All the stakeholders will have questions, some of which can be answered and some of which cannot be answered at this time. All employees need to be briefed with a list of questions and answers and instructed to send parties to a central communication point. If this does not occur, misinformation will cause additional problems that will have to be addressed.

The interim fund management may also have to decide whether it must pursue its own internal investigation. This will be a very sticky wicket which will require constant legal advice every step of the way.

It is not what the innocent managers bought into. But it doesn't matter that they don't like it, they have to deal with it. Such is the challenge of dealing with a crisis.

Cheers, Mike

THE MANAGEMENT BANKRUPTCY BONUSES

I have always found it quite interesting that for the past 20 years, top management for larger bankrupt companies require handsome retention and success bonuses for getting a company through a bankruptcy.

Here is an article from the NY Times setting the stage for the Chicago Tribune bonuses. The Tribune is in bankruptcy as the newspaper industry fights going the way of the slide rule and the typewriter. The theory of these bonuses is that people have to work very hard and they should be rewarded. And if they don't get a bonus, the good people will leave.

While some bonus may be appropriate to retain people, the total situation should always be considered. For example, yes, the people have to work hard. I am unaware of many jobs where you don't have to work hard. And yes, they need to rewarded for their efforts. Yet many people have had their wages frozen or reduced due to the lack of profitability afflicted thousands of companies.

And, yes, the good people will leave. Although, who is hiring in the newspaper industry? My experience is that the really good people may leave anyway. For them the issue is not the golden handcuff known as a retention bonus. For them the issue is the certainty of having a job. Put aside whether anyone has employment certainty anywhere these days.

So, retention bonuses for large groups of managers who were at the helm when the ship was grounded? You could bring in an outside firm to run the company or augment the team. But then, that may or may not be the best bargain either.

Cheers, Mike

PREPARE A FLIGHT RISK PLAN

Leaders are sometimes faced with a difficult situation where one of their direct reports behaves in a manner inconsistent with the culture and values of the company. For example, in a consulting firm, a key producer could might treat the employees who work for him/her poorly. The treatment may be inconsistent with the values of the company but, the key producer is important to the firm. There is a price to keep the key producer, but heretofore the price has not been considered too high.

But then the key producer starts to get arrogant about his/her behavior and the behavior causes more issues. The leader is now faced with a problem that must be addressed or will it? Remember, the key to leverage is being willing to accept any outcome. If the leader cannot accept losing the key producer, the leader will be relatively powerless to change that person's behavior. When push comes to shove, the leader can't accept losing this employee.

When we had our own firm, we used to identify our key flight risks. We would consider which of our top people might leave or might have to go away. We then put together a plan if that person had to leave immediately. This plan gave us the comfort to know that we could handle the departure of a key employee.

It also gave us the ultimate leverage in any negotiation with our people. We could handle the result of their departure. It wouldn't be our preferred result, but we could handle it. A leader must be able to handle the departure of key employees in order to effectively lead and maintain the values of the company.

Cheers, Mike

CHRYSLER IS LOOKING AT FALLING FALL SALES

This is what happens when you have 30 day bankruptcy. The WSJ reports that all is not going smoothly in Chrysler land. The management often spend its time trying to get out of bankruptcy not fixing the core business issues to ensure the company's viability.

The WSJ also reports that Chrysler's issues may be more difficult than the FIAT management may have understood. They must have noticed the issues that Daimler Chrysler and Cerberus had running Chrysler previously. This movie has just started and the outcome is in doubt. Just sit back, have some popcorn and watch. It should be interesting.

Cheers, Mike

NEGOTIATING LEVERAGE

One of our followers is selling his BMW convertible. This reminds me of a story about negotiating leverage. Twenty-five years ago I owned a Triumph Spitfire. For those of you who are not familiar with the Spitfire, it spent more time with the hood up then it did on the road. The time had finally come for the Spitfire to go away.

I put the car out with a 'for sale' sign. I was a reluctant seller of the car. I was asking $1800 and after a couple of days I had two parties who were interested in the car. So I scheduled them both for a fall Saturday. The car looked great and the hood was down. A college guy and his brother were scheduled first.

We took the car for a test drive and they decided they wanted the car. The older brother said, "Put our your hand." I put my hand out and he put 17 hundred dollar bills in my hand. "How does it feel?" I replied, "It feels one light." He said smugly, "It is $1700."

I replied, "I have someone coming this afternoon who wants the car." He said, "$1700 in hand is better than $1800 in the bush. And it is only $100 short." I decided to speed up the negotiations. "Actually it is $200 hundred short. I just raised the price to $1900."

The older brother looked surprised and said, "You can't do that!" "Of course I can, and I just did. If I were you, I would hurry. I am a heartbeat away from raising the price to $2,000." He pleaded, "Would you take the $1800?" "Well, I just raised it to $1900. But you seem like nice guys, I will give it to you for $1800." They gave me five twenties and I gave them the keys.

They were negotiating with no leverage. They really wanted the car. Ultimate leverage comes from being able to accept either outcome. I was truly indifferent whether I sold the car or not. They never had a chance.

Cheers, Mike

YOU LOST 30% AND THE REST IS ILLIQUID??

Really stellar job done by the much touted endowment investment groups of Harvard and Yale. For years the two schools have blown their own horns as to their investment acumen. David Swenson, Yale's investment office head, even wrote an investment book that was a big hit with the endowment and foundation crowd.

But Yale's and Harvard's 30% losses over the past year is even worse. First of all the year ended June 30. Many investors have recovered somewhat in the rebound since March. But not Yale and Harvard. Both institutions have a very low percentage of their portfolios in public equities and apparently a high percentage in illiquid investments. Investments which haven't rebounded and if they are in commercial real estate, still may go down. The Brown University story is also telling.

Clearly the endowments were entirely too illiquid. This wouldn't be so bad, but these universities used their endowments to fund significant portions of their operating budgets. So perversely, these schools, which still have multi-billion dollar budgets, have to resort to cost containment actions such as wage freezes, hiring freezes, cost and service cuts and capital expenditure deferments.

The losses are understandable given what has transpired over the past year, but the lack of liquidity given how much their annual operating budgets depended on the endowments is a little perplexing.

Cheers, Mike

FOLLOW THE RULES

My wife has been seriously bitten by the golf bug. The other night she came home and had a rules question. I answered the question but she said the other players thought it was the wrong answer. So I went online to the USGA.org and found the answer which backed me up. Thank you USGA, I knew I had to be right once this year.

On the way to the golf course today, I decided to pick up a copy of the rule book for my wife (I am such a big spender). I stopped by Golf Galaxy, seemed like a likely candidate to sell me a copy of the rules. I waited at the front desk to ask for a copy. While I waited, I saw that they sold lip balm, Advil (breakfast of champions), little bag watches, various faux climbing caribiners to hang stuff on a golf bag and other relatively useless items. Finally it was my turn, "Yes, I would like to buy a USGA rule book." I was met with the following reply, "We don't have any rulebooks." I chuckled to myself, you have all this crap (technical term) but you have no rulebooks. I said, "thank you, have a good day."

I live in Shopping Center USA, so I drove a par 5 away to Golfsmith. I went in and asked for a copy of the USGA rules. The salesperson said, "We may have some in the back." While I waited, I looked at the now usual lip balm, Advil, Heathcliff bars, Gatorade bars, some gizmo to put a line on golf balls and all sorts of other odd items. The salesperson came out and said, "We don't have rule books." I said, "Thank you, have a good day."

I then went to the club, hoping against hope for a rule book. I went into the pro shop and looked around. Hmmmm, no rule books hanging around. So I asked the young lady at the counter for a rule book. "Sorry, we don't have any rule books." Wow, is this for real or is this Candid Camera. But then the assistant pro cheerfully spoke up, "I have a rule book, you can have mine." I replied, "I don't want to take your rule book." He said, "I have another home, please take mine." And so I thankfully did.

It is really hard to follow the rules if you can't get a copy.

Cheers, Mike

HOW OPEN SHOULD A LEADER BE?

Rich Karlgaard has an interesting commentary in Forbes on a leader's openness. He writes about how open a leader should be or not? My style was to be generally open. There were times though where as soon as I said something to our employees, I new I was too open. People don't need to know all the details of why a leader thinks, acts or speaks in a certain manner.

It is one thing to show you are human and totally another thing to leave people doubting you because you told them all your imperfections and fears. Everyone has to find what works for them. Here is hoping you think of what you want to share before you share it.

Cheers, Mike

THE BIG THREE NOW

Good to see that Ford was the lone US car manufacturer to benefit from the Cash for Clunkers Program. It is also clear that just because Chrylser and GM are out of bankruptcy, doesn't mean the companies are not still broken (technical term). According to Forbes in this article, GM and Chrysler's sales actually went down!

Yes, they have new balance sheets that make them potentially viable. But have the operations really been changed in a meaningful way to ensure their viability? Are they making cars that people actually want to buy? Well maybe GM has some cars in the oven that Americans will buy. But Chrysler? I can't see the FIAT cinquecento taking off in any meaningfull way. The Smart Car sized car will likely have limited appeal. I am a big fan of the recent styling of the Alfa Romeo, but really, how many of these will be sold?

Watch closely to see how GM and Chrysler do going forward. It should be interesting.

Cheers, Mike

MADOFF, REN TEC AND WHAT YOU READ

So, little Bernie is a page one topic again. This time however, the prime suspect is the SEC. The SEC's Inspector General issued a report that casts the SEC in a very poor light. This report can be viewed in its entirety at this link.

How could he do this volume of options?While this report will be covered in detail by the financial press, I want to focus on a hedge fund, Renaissance Technologies, that decided to exit the Madoff funds several years ago because, they didn't like the answers they were getting and the answers they couldn't get. How was Bernie making such consistent returns? How could Bernie always be in cash just when he needed to be? The WSJ today has a good article on their decision. But is it the complete story on Ren Tech?

Check out this Zerohedge piece today which reads further into the SEC Inspector General's report and discovers that Ren Tech didn't take everything out of the Madoff funds and didn't disclose its suspicions to the SEC.

Many of the matters I worked on were covered by the financial press. One of our interns once said to me, "It was great working the summer on a matter that was in the business section every week. But I was very surprised how much was incomplete or wrong."

Good to bear this in mind when reading various financial pieces, including this blog!

Cheers, Mike

LOAN TO OWN? OR WHAT CHOICE DO WE HAVE?

There is an A1 WSJ article this morning, Distressed Takeovers Soar. The main points of the article are that M&A deals are largely occurring in bankruptcy court these days and that many investors are buying the debt to take over financially troubled companies.

I agree that M&A bankers are now spending most of their time on bankrupt M&A deals. This is not because it is a novel way to do a transaction or because it is efficient. No one would ever accuse a bankruptcy M&A process of being efficient. Expensive yes, efficient no. It is simply because in these economic times, corporations are playing it close to the vest and not on acquisition sprees. It is sometimes easier to let a competitor go out of business than to aquire the competitor.

The other main point is that investors are using debt to acquire bankrupt companies. This is the so-called loan to own approach. There are several examples of this technique and the article implies this is now happening everywhere. Au contraire!

Most of these so-called 'loan to own' situations are really as follows. Banks, hedge funds and others make loans to less than stellar companies. The lenders believe they have priced the deal and collateralized it to protect their reasonable downside. The company then underperforms and the debt starts trading down. Some of the banks and mutual funds sell their loans to hedge funds and other distressed investors. These investments are still made with the thought of getting a large enough return to justify the purchase. The investment thesis is not generally, 'hey, let's buy more of the debt at a discount and then we can bid our debt and buy the company'.

The way it often works is that the funds now have one or two rounds of debts purchases at a discount and then the company underperforms again! Now the investors realize that a sale of the company is not imminent at a sufficient price (see Delphi). The next great thought? Hey let's own the company! We can buy it with out debt. Just great, now they are bidding in their debt to own a company which the buyers are not set up to own.

Loan to own works much better when a buyer decides to buy an underperforming company whose debt is trading at a discount. The buyer starts buying the debt at a price under which it will bid for the company. This effectively lowers the buyer's price and protects the buyer against losing the purchase in a bankruptcy. If the buyer is outbid by another buyer, then by definition it will have made a profit on its efforts.

Loan to own, not as a black and white surgical process as you might be led to believe.

Cheers, Mike