Like CCC securities in the corporate high yield space, distressed Emerging Market Sovereign debt is often an overlooked segment of the asset class. But possibly for the wrong reasons.
The simplistic view is that buying distressed debt has the risk of default that results in the investor receiving zero. In practice, between default and zero lies the restructuring story. Which whilst often anticipated and complex, pairs a risk with a potentially high reward.
Factor in haircut calculus, historical recovery values averaging 50%, and deep discount purchases from forced sellers, the ability to generate double digit returns by experienced distressed debt asset managers has not gone unnoticed by the professional investor community. Nor have the opportunities that exist in today's Emerging Market Debt environment.
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