If an entity is at a heightened risk of defaulting, who is lining up to buy those junk bonds? What’s the benefit? From vantage point, purchasing junk bonds holds much more downside risk than there are upside. So, what’s the point of purchasing these bonds?
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Keep in mind that you are buying the bonds with the credit event already factored into the price (lowered price). The key is to negotiate a low price to such an extent that negotiating the credit event becomes feasible.
If you have enough when the credit even occurs, you become the one to negotiate the terms of repayment and/or take over and practically squeeze most other debt/all equity into tiny portions. If they survive you end up making a lot of money.
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