What are Distressed Debt Funds?
Distressed Debt Funds acquire Non-Performing Loans (NPLs) and stressed bonds from banks and ARCs at significant discounts (40–70% of face value). Returns are generated when these assets recover value through IBC resolution, settlement, or operational turnaround, creating 20–28%+ IRRs on invested capital.
- Deep Discount Acquisition: Buy at 30–60 paise on the rupee
- IBC Resolution Upside: NCLT-supervised process with clear timelines
- Collateral Backed: NPA loans backed by land, plant, equipment
- One-Time Settlement: Quick resolution via OTS can yield 2–3x returns
- Contrarian Opportunity: Uncorrelated with equity market performance
Distressed Debt Resolution Process
Distressed debt funds use multiple resolution strategies:
- NPA acquisition from PSU banks, private banks, and ARCs
- Due diligence on collateral value and legal title
- SARFAESI enforcement for secured assets
- IBC/NCLT process for large corporate insolvencies
- Exit: asset monetisation, settlement collection, or equity conversion