Market Size and Investment Performance of Defaulted Bonds and Bank Loans: 1987-2002

Abstract:     
This article assesses and analyzes the size and performance of defaulted bonds and bank loans for the period 1987-2002. Defaulted bonds and bank loans performed somewhat poorly during 2002, reversing the relatively good performance of the preceding year, but more in line with several of the past recent years. This "asset class" has attracted an increasing amount of new capital, however, as the supply of distressed and defaulted debt securities continued its substantial growth over the past four years. Indeed, the estimated supply of defaulted public and private, distressed and defaulted, debt reached an enormous total of $942 billion by year-end 2002. The outlook for distressed investing was extremely bullish at the start of 2003, given the supply/demand dynamics and the likely regression to the mean of the market to face value ratio.

Number of Pages in PDF File: 11

JEL Classification: G15, G21, G28

Accepted Paper Series