Wednesday, May 17, 2006

Investing in Bankrupt Firms

Ever hear of vulture capital? No, not venture capital. Vulture funds specialize in investing in companies that are facing financial distress. These are usually firms with lots of debt and are in danger of going bankrupt. Traditionally, vulture investors buy the debt at huge discounts. Then they negotiate a corporate restructuring plan that leaves them holding much of the common stock in the newly emerged firm. More recently, however, some are even buying the stock of distressed companies while they are still in Ch. 11 bankruptcy.

Yesterday, I interviewed Lynn Harrison. He is a corporate bankruptcy attorney with Curtis, Mallet-Prevost, Colt & Mosle. That's an international law firm headquartered in New York City. Lynn is co-chair of the firm's bankruptcy and creditors' rights department. We talked about investing in distressed companies. We even talked a little about the U.S. automobile industry.

Lynn has also been spending time in China. Since China is becoming such a big player in the global economy, it must learn to handle financial distress in a manner that is consistent with global standards. Lynn was in China recently for a number of reasons. One was to study its bankruptcy laws and learn how they differ from those in the U.S. and elsewhere.

My MoneyMasters interview with Lynn Harrison will be posted on tomorrow morning at 6:00 am.