| name | credit-events-distressed |
| version | 1.5.0 |
| last_modified | 2026-03-22 |
| description | This skill applies when analyzing bankruptcy, restructuring, liability management exercises, recovery value, or event-driven credit situations where a transaction or legal process can materially change downside, priority, or repayment outcomes.
|
| category | special-situations |
| related_skills | ["cre-analysis-underwriting","credit-memo-generator","credit-modeling-and-valuation","credit-surveillance-monitoring","debt-structure-covenants","industry-sector-analysis","trading-pricing-mechanics"] |
| triggers | ["distressed credit","restructuring","bankruptcy","Chapter 11","recovery analysis","liability management exercise","LME","DIP financing","fulcrum security","event-driven credit","M&A impact on bonds","change of control","refinancing risk","loan-to-own","special situations"] |
| disambiguation | Prefer this skill when a transaction, capital structure change, legal process, or distress dynamic can alter recovery, priority, or downside outcomes.
For pre-distress monitoring and watchlist escalation, use credit-surveillance-monitoring.
For covenant interpretation and basket analysis, use debt-structure-covenants.
For property-level workout and collateral analysis in CRE, pair with cre-analysis-underwriting.
|
Special Situations & Distressed Credit
Special situations credit work is downside-first and process-aware: identify the trigger, map the legal and structural consequences, determine who controls value, and only then translate that into recovery, risk/reward, and portfolio action.
Core Workflow
- Classify the situation: Distinguish event-driven, liquidity-driven, documentation-driven, and formal restructuring situations before jumping into valuation.
- Map the legal and structural position: Identify claim priority, lien package, guarantees, entity structure, covenant flex, and any mechanisms that can subordinate or prime existing creditors.
- Determine timing pressure: Build a liquidity runway and maturity wall view to understand whether the company has negotiating time or is approaching a forced process.
- Frame the resolution set: Compare amend-and-extend, exchange, LME, prepack, freefall Chapter 11, asset sale, or liquidation based on feasibility rather than preference.
- Value the business or collateral conservatively: Use enterprise value, asset value, or collateral value consistent with the actual resolution path.
- Run the recovery waterfall: Deduct administrative claims, DIP effects, and senior claims before assigning value to the fulcrum and junior classes.
- Translate into an investor view: Summarize catalysts, path dependency, probability-weighted outcomes, and where the market price implies a different view from the underwriting.
Reference Map
Read the most relevant reference for the question at hand rather than loading the full library.
Core Restructuring Concepts
references/bankruptcy-legal-framework.md - U.S. bankruptcy fundamentals: Chapter 7 vs. Chapter 11, claim definitions, class formation, voting, blocking positions, cramdown, and subordination.references/modern-restructuring-pathways.md - Compare out-of-court, prepack, pre-arranged, and freefall paths.references/liability-management-exercises-lmes.md - LME types, documentary vulnerabilities, and creditor positioning.references/dip-financing-framework.md - DIP types, lender protections, and recovery impact.
Analytical Frameworks
references/distress-diagnosis-and-liquidity.md - Root-cause diagnosis and forensic liquidity analysis for distressed credits.references/valuation-and-recovery-waterfall.md - Enterprise valuation, recovery waterfall methodology, and present-value recovery framework.references/litigation-risk-bankruptcy.md - Avoidance actions, equitable subordination, consolidation, and litigation drag.references/loan-to-own-strategy.md - Control investing, credit bidding, and fulcrum positioning.references/event-driven-credit-framework.md - Timeless framework for M&A, change-of-control, IPO, refinancing, and ownership events.references/m-a-process-mechanics.md - Process stages and certainty drivers for transaction-driven credits.references/post-restructuring-monitoring.md - Re-baselining an emerged credit and handing off into surveillance.references/tax-implications-restructuring.md - Tax issues that can affect value distribution, cash leakage, and post-emergence earnings power.
Instruments & Asset Classes
references/distressed-loan-investing-lsta-standards.md - Loan trading and settlement context for distressed situations.references/cre-distressed-situations-workouts.md - Pair when the distress question is property-backed or workout-driven.
Tools & Summaries
references/practical-checklist-for-distressed-credit-analysis.md - Reusable checklists for distressed situations and event-driven credits.references/recovery-analysis-cross-reference.md - Route recovery questions to the right asset-class skill and method.
Output Deliverables
When asked to analyze a distressed, restructuring, or event-driven credit situation, produce:
- Source citations: Explicitly cite all filings, legal documents, market data, and third-party sources.
- When a stable direct URL exists, include it inline with the citation and keep any page, slide, filing-date, report-date, or access-date detail in the same citation.
- Situation framing: Event type, timeline, key parties, legal context, and why the situation matters for creditors.
- Capital structure and priority map: Claims by entity, lien, guarantee, and effective seniority.
- Liquidity and path assessment: Runway, maturity pressure, and the most plausible restructuring or resolution paths.
- Valuation and recovery range: Enterprise or collateral value range, waterfall allocation, fulcrum identification, and present-value recovery where relevant.
- Scenario comparison: Range of outcomes, probability framing, and the drivers that move recovery between scenarios.
- Investor conclusion: Price versus underwriting, key catalysts, documentary or litigation risk, and what would change the view.
Limitations
- Distressed valuation is path-dependent: the right framework differs for consensual exchanges, going-concern reorganizations, and forced liquidations.
- Recovery estimates are highly sensitive to legal outcomes, administrative costs, and the timing of resolution; always show ranges and key sensitivities.
- Market price is not the same as recovery value; secondary prices embed liquidity, positioning, and optionality.
- Creditor rights may differ materially from headline labels such as "secured," "senior," or "pari passu"; confirm with documentation and entity structure.
Data Quality
- Never silently fill missing information with assumptions. Use
skills/credit-memo-generator/references/incomplete-data-guidance.md to disclose gaps explicitly.
- Keep legal fact, valuation judgment, and market pricing separate. Blending them obscures what is known versus inferred.
- Use
references/default-recovery-rates.md and references/typical-deal-parameters.md to calibrate judgment, not replace bottoms-up underwriting.
- When the framework may be unreliable, consult
skills/credit-memo-generator/references/analytical-limitations.md and state the limitation directly.
Examples
examples/worked-recovery-waterfall-example.md: Recovery waterfall example showing claim mapping, DIP impact, fulcrum identification, and pro forma post-restructuring capitalization.
