Distressed Security

A distressed security is a security belonging to a company that is under financial distress, such as bankruptcy, restructuring, liquidation, etc. in order to be able to pay debts (avoid insolvency). One strategy for dealing with a distressed security is to purchase the distressed security at a discount price and hold onto it until it has appreciated again in value. This investment strategy is considered risky because there is a chance that the company of the distressed security will not recover at all. Still, the potential profit from a distressed security makes it appealing to more aggressive investors. These profits may result from the market's lack of understanding of the true value of the distressed security. A distressed security may also be known as a distressed asset.