- 1). Begin reading financial newspapers and newsletters every day or every other day, either at your local library or on the Internet. In order to identify companies that are in financial distress, you must first begin to become knowledgeable about the financial health of publicly traded businesses. Read publications like The Wall Street Journal, Forbes, and Barrons to become familiar with the trends, overall financial situations, and what companies are in financial trouble, unable to repay debt.
- 2). Identify specific companies that are having trouble meeting their financial obligations. There will be news items that tell you a company is late in repaying loans, or has experienced some type of major setback, causing a large loss.
- 3). Research the companies you have identified. You want to determine why they became distressed and if, with restructuring, they will become solvent again.
- 4). Discuss with your trusted financial adviser, or stock broker, what funds contain the distressed debt of the companies you targeted. The type of funds and securities that usually buy distressed debt for their portfolio are mutual funds, hedge funds, and equity firms. Your financial adviser or broker should have the resources to discover which fund holds the debt. She also should be able to provide you with additional, industry-exclusive information about whether the company you selected will recover.
- 5). Purchase the desired quantity of shares of the fund that holds the distressed debt. In most cases, you will be asked to sign a release, or something similar, acknowledging that you realize the risk involved in investing in these types of funds.
- 6). Follow the progress of the company and your fund as it advances through restructuring. Read the financial newspapers and newsletters you used to initially research distressed-debt companies.
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