Distressed Debt 1 has outperformed the S & P Total Return by over 600% since it inception

 

Click to see our August Performance

 We are on track for a very successful year up 17.93%.

Distressed Debt 1 has outperformed the S & P Total Return Index by over 600% since it inception.

The Distressed Debt 1   cumulative return from 10-1-2015 is 175.24%
The S & P 500 TR Index cumulative return from 10-1-2015 is . 27.23%

Distressed Debt 1 has very little correlation with the S & P Total return with a negative beta of -.72.
This helps Distressed Debt 1 to achieve a very high alpha of 4.47.

 On 9-6-2017, Distressed Debt 1 was ranked 2nd nationally in (CAGR) according to HedgeCo.net and their database of over 9000 Hedge Funds.

In 2016 we were the ranked as the top performing Hedge Fund in the nation by HedgeCo.net.

We re-positioned a significant portion of the portfolio in May, with a goal of bettering our positions for the second half of 2017.

 

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ROLTA wrongly prioritizes Stockholders ahead of Bondholders

We are pleased to see that Rolta (NSE:ROLTA) has reported steady and improving profits, as well as free cash flow, when comparing its year over year numbers.  We welcome this continued vigilance, but the company’s absurd proposal to their bondholders in regard to a debt restructuring is a wanton disregard for their (bondholders) senior claim on company assets, and should be NOT be taken.

 

We are writing this to ensure that Rolta (NSE:ROLTA) and its ad hoc committee know that the global standard on defaulted bonds is to be awarded 98% of the company value through stock dilution.  For bondholders to accept Rolta’s proposed solution on top of this type of failure and loss of income is ludicrous.  We ask that  bondholders be awarded 98% of the company’s equity (stock) in exchange for one-half of the outstanding notes to compensate for the loss of principal and interest, and for the replacement 5 year bonds to be couponed at 8%, one-half of which may be paid by PIK.  This will reduce Rolta’s cash interest payments by over 75%, and reduce the principal that is due in 5 years by 50%.  We believe that these are reasonable hurdles that an ethical and sensibly focused management team can attain, and help ensure that Rolta will continue to survive as both a profitable and respectable entity.

 

We were actually stunned by the following recent announcement of a dividend consideration for  Rolta common stock while its bonds are (and have been for a long time now) still in default.

 

           Rolta India Ltd Board to consider Dividend for 2016-17

“A meeting of the Board of Directors of Rolta India Ltd will be held on May 30, 2017, to consider and take on record, the Audited Consolidated & Standalone Financial Results of the Company for the quarter and financial year ended March 31, 2017.  In this meeting, the proposal for recommendation of Dividend for the financial year ended March 31, 2017, if any, shall also be considered.”

 

Considering that these senior bonds are legally in an advanced (senior)  liquidity position, in front of the common stock, the fact that Rolta was entertaining the idea of utilizing its liquidity and excess free cash flow to pay a dividend is appalling.  Rolta’s senior bonds are plainly in default.  As a result of its failure to make interest payments, they have diminished in value to mere pennies on the dollar.  As we all  know, this is a legitimate debt that takes legal precedence over the common stock.  The only viable reason that we can identify for Rolta to ignore its legal obligation to bondholders points to the fact that the chairman of the board and CEO of Rolta, (Mr Singh, and his family foundation) own a combined interest of around 50% of its underlying stock.  This appears to be a tremendous, and very ugly, conflict of interest between his personal holdings, and his duty as an officer of a public company.

 

Consequently, we are angered by the fact that the equity holders may be unfairly, unethically, and perhaps even illegally, taking advantage of the debt holders that made this company viable.  Evidently, Rolta is not taking its bond default seriously if its board members gave consideration to and entertained the far fetched idea of boosting dividends while in debt default, having broken covenants with its lenders.  Subsequent to Rolta’s profit improvement that brought the idea of paying out cash dividend, the company is offering to exchange its broken and unpaid notes for new, 5 year bonds that will only make “payments in kind” (PIK) at a very reduced coupon rate of 2%.  This is a complete failure of the promissory notes and agreements Rolta signed on to when issuing the paper to receive the initial funding.

 

Therefore, we ask that Rolta stop the madness of insulting and disparaging bondholders with exchange offers which lack any benefit of substance and very clearly reduce their position to something significantly less than that of common stockholders.

 

Randy Durig

 

Founder of Distressed Debt 1 LP and Durig Capital, Inc.

 

For questions regarding Rolta contact us at:

Rdurig@Durig.com

(971) 327-8847

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Gran Colombia Bondholders Should Vote Against New Plan

gc

Gran Colombia Gold (TPRFF) has reported strong first half of 2015 results, including a 6% year over year increase of revenues and a 25% reduction of all-in sustaining cost (“AISC”), which resulted in an adjusted net income of $0.13 per share, compared with an adjusted net loss of $0.54 per share the first half of the year prior. We expect that the increase in 2015’s gold production, coupled with the reductions in total cash cost per ounce sold and G&A expenses, will continue to result in increased net income.

As a result of this, Distressed Debt 1, LP has taken a position in the company’s 5% senior unsecured bonds (the Silver notes, due in August of 2018), and we oppose the company’s debt restructure proposal under the Business Corporations Act (British Colombia) for the following reasons: Read more

Our Distressed Debt Selection Process

Distressed Debt

Our distressed debt selection process

After our initial daily screening of global bond issues for yields and maturities:

  1.      We review the issuer’s most recent quarter and year end financials and its relative performance to the industry segment it’s within for any signs or indications that their financial woes may have changed course.
  2.      If issuers show multiple signs of a turnaround (most do not, as they simply are just waiting for the climate that affected them to improve), we mark only the top 25% of them for further review.
  3.      In more intensive review, we compare the debt load to revenues, income, gross profits, cash flow, cash on hand, asset valuations (vs. book valuations), etc.  We believe debt to asset valuation outweighs minimal profits or low coverage ratios.
  4.      We then review its stock and current news to see if we can identify a changing trend or a new business cycle that corresponds to any improvement. We try to measure performance from the point of the change.
  5.      Finally, we take the idea to our team to see what additional risk they might see or find that hasn’t been factored into the issue.

Five basic steps are observed in nearly every successful turnaround: Read more

Distressed Debt Investing

Distressed Debt

Investing in Distressed Debt

Distressed securities may be an attractive investment option for sophisticated investors who are looking for a bargain and are willing to accept some risk. Distressed debt investing combines the best of both worlds — the cash flow of debt investments with the appreciation potential of stocks. While there is no hard and fast rule for what makes a “distressed” investment, it’s generally accepted that distressed debt trades at a huge discount to par value  because the borrower is under financial stress and at risk of default. Distressed securities are debt securities; most often corporate bonds, from companies that are experiencing a high degree of financial pressure.

When a company’s ability to meet its financial obligations is challenged, its debt securities might be substantially reduced in value. When does “reduced in value” become “distressed”? Typically, a company’s debt is considered distressed when its yield to maturity is more than 1000 basis points above the risk-free rate of return (which is the return of a “risk-free” asset such as U.S. Treasuries). A security is also often considered distressed if it is rated CCC or below by one or more of the major debt-rating agencies, which include Standard & Poor’s, Moody’s and Fitch.

Many companies fail simply because they are overburdened with debt. Distressed debt investors can make a fortune by buying the debt of over leveraged companies for pennies on the dollar, with the goal of taking control of the company.

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Disclaimer

Information on this website is provided for informational purposes only and is not offered as advice with respect to any particular security or related financial instrument. This information should not be used as a basis for making an investment decision and must not be treated as a substitute for seeking advice from a licensed professional. The suitability of a given investment for a particular investor depends on a number of factors, each of which should be considered carefully. Such factors include, but are not limited to, the risk associated with the investment, the nature of current market conditions, and the investor’s objectives, personal needs, and specific circumstances. This is neither a solicitation to buy nor an offer to sell to persons in Texas. The Distressed Debt 1 Hedge Fund is not available for State of Washington residents

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Distressed Debt 1, LP and Its Philosophy

Distressed Debt

A Global Distressed Debt Hedge Fund
Distressed Debt 1 LP

Distressed Debt 1, LP is a Delaware limited partnership that searches the global bond markets looking to buy deeply discounted or defaulted debt for pennies on the dollar, from issuers that appear likely to restructure or settle the debt and still return significantly higher returns than are normally associated with high yield junk bonds. Many of these companies may be in a technical or selective default, and some of them will continue to pay interest income at very high rates while seeking better terms with existing debt and bond holders. Consequently, we seek to achieve a cash flow average above 15% while waiting for companies to improve balance sheets and negotiate more favorable terms with creditors.

Distressed Debt 1’s unique expertise is in very early identification of companies from around the world executing superior business turnarounds, where Wall Street has priced the stressed bonds for default.  Good businesses can be mismanaged or become over leveraged.  However, companies with monopolistic or essential industries in their own country often can have less direct competition, so a new turnaround plan along with new management could prove to be the key to a full and complete recovery.  Through our highly selective process, we have acquire for pennies what others originally paid dollars for. Our goals is to not only forecast a possible debt recovery, but more importantly, we often find companies with distressed debt valuations, where a recovery is highly probable.

We search out for unique or lesser known issuers that are in trouble because of a onetime  black swan event, which has resulted in its bonds being jettisoned or shunned by the majority of  the marketplace because of the sudden failure to meet minimum criteria written in the  prospectus of many bond funds.

The time to buy companies is when others may be forced to sell

We typically watch companies for many months after the default or black swan type of vent to evaluate whether a new management team or the operations situation has changed in any way that would offer good reason for increased value for debt purchasers. If the debt has been reduced by 70-­90% or more as a result of lower bond prices and the stock or equity holders have essentially lost control,  because of the risks involved, large institutional investors that may try to influence the process of reorganization are usually the major buyers of distressed securities. For sophisticated investors who understand investing in distressed securities and are willing to accept the risks, these rare situations can be extremely attractive bargain opportunities.

Black swan events hurt most investors, but a few know how to take   advantage of troubled companies. Shouldn’t you?
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