“Loan-to-own” is the process by which investors buy into a piece of
distressed debt (that is, debt trading at a discount because the
market considers that the debt is unlikely to be repaid in full and on
time) with a view either to: (i) swapping the debt for a potentially
more valuable equity stake in the company; or (ii) enforcing
security over the company and/or its assets, with a view to taking
control of the company as part of a debt restructuring. A distressed
company which is over leveraged but has a viable underlying
business (good business, bad balance sheet) makes for the ideal
target.
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