Distressed debt: Clever ways to do the dumbest things

Oldspeak and newspeak Private distress is most profitable Disguising risks in distressed debtDistressed debt used to be a secondary-market play. Today, it’s a primary-market business. Distressed or stressed companies don’t avoid default by restructuring old debts. They put on new ones supplied by myriad new forced buyers of credit. The product’s already distressed when it goes on the shelf. Peter Lee reports.EXCESS LIQUIDITY SABOTAGES the capital markets’ mission of efficiently allocating funds to their most productive users. Instead, markets spew up cheap funding over anyone holding their hand out. Today, the exuberance of the structured credit markets, evident in tight pricing and easy availability to even the most questionable borrowers, is propping up asset prices across the board. Talk to participants in the credit markets and they will all tell you how sophisticated they have become as banks have been replaced as the chief suppliers of loans by a raft...