Cloudy with a Chance of Profit: A Company's Distressed Baby Bond Opportunity

Exploring the complex past and present realities of a niche category market leader

Executive Summary:

In this post, I review and discuss a beaten-up tech company’s distressed bonds which were issued primarily to retail investors. These bonds are trading substantially below par and yield over 20%.

This company has a complex financial history and has burned many equity investors in the past. However, the worst of these issues appears to be behind us with real prospects of a clean turnaround. With positive expected FCF and no other debt in the capital structure, these bonds appear to be sufficiently covered. If business performance improves as expected, I think these bonds will be refinanced closer to maturity and could drive total returns in excess of 50%

I think this opportunity exists due to the company’s real (albeit improving) financial challenges, coupled with a small, illiquid tranche size that is primarily held by retail investors. Note that this is a very illiquid (and volatile) instrument and quoted prices may not be actionable.

Disclosure: I am long the securities mentioned in this article. The information provided is for informational purposes only and should not be considered as investment advice. Any investment decisions made based on the information provided are at your own risk. It is essential to conduct your own research and consult a qualified financial advisor before making any investment decisions. Investing involves risks, and past performance is not indicative of future results. By using this information, you acknowledge that you are responsible for your own decisions and release me from any liability. Seek professional advice tailored to your financial situation and objectives.