Distressed Value Investing
Spring 2015
(**All below information is subject to change**)
DANIEL KRUEGER
Owl Creek Asset Management
E-mail:
Class location: Warren 311
TAs:
REQUIRED READING
Distressed Debt Analysis by Stephen G. Moyer
RECOMMENDED READING
U.S. Bankruptcy Code with Title 11 (must be 2006 or later)
OPTIONAL READING
Understanding Bankruptcy by Michael J. Herbert
REQUIRED PREREQUISITES
This class is quantitatively challenging, but no prior knowledge of the bankruptcy process is required. An
understanding of and comfort with common valuation methodologies is essential.
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Required: Capital Markets and Investments
Highly Recommended: Debt Markets
CONNECTION TO THE CORE
The learning in this course will utilize, build on and extend concepts covered in the following core courses:
Core Course
Corporate Finance
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Connection with Core
1. Cost of Capital
2. Valuation
3. Financing Options
4. Time value of money
5.
6.
7.
1.
2.
3.
1.
2.
3.
4.
5.
6.
7.
8.
Opportunity cost (of capital)
The Capital Asset Pricing Model (CAPM)
Firm Valuation Model
Financial Accounting
The “accounting equation”
Revenue and expense recognition
Resources and obligations – measurement and disclosure
Managerial Economics
Barriers to entry
Moats
Maximization and thinking on the margin
Analyzing complex decision-making under uncertainty
Decision-based cost analysis
Pricing with market power
Market segmentation and other advanced pricing strategies
Understanding market competition and equilibrium thinking (in the
short-run)
9. Market equilibrium thinking (in the long-run) and barriers to entry
10. Strategic interaction among firms and Nash equilibrium
Strategy Formulation
1. Trade-offs, value-added, efficiencies
2. Creation of value vs. value capture
3. Competing firms
4. Co-optition and Complementors
5. Strategic interaction analysis
6. Diversification and scope
7. Ethics & IBS
8. Behavioral and evidence-based strategy
9. Management
Students will be expected to have mastered these concepts and be able to apply them in the course.
COURSE OBJECTIVE
The goal of the class is to provide students with broad-based exposure to what is one of the most complex and
intellectually stimulating areas of the market. The class will introduce distressed investing broadly, touching on many
different ways to invest in distressed companies and securities. The class is taught mostly via discussion and guest
speakers and is intended to allow the students to interpret and learn from dynamic real-life situations.
COURSE OUTLINE / ASSIGNMENTS
METHOD OF EVALUATION
Class Participation
35 points
Homework
Group Project
35 points
30 points
Class Participation (35 points):
Points will be allocated based on the student’s active participation in and contribution to the class. Students will not be
penalized for giving incorrect responses to questions or for asking basic questions, as long as limits are maintained and it
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does not become a distraction and hold back the class. Missing class will affect a student’s class participation grade,
although emailing ahead of time with a valid reason will be taken into consideration. Attending an actual bankruptcy
hearing and doing a short writeup (up to 5 points) and a bankruptcy simulation (up to 5 points) will also count as part of
class participation.
Homework (35 points):
There will be five homework assignments due at the start of certain classes as described in the syllabus. Although what
you hand in will be in hardcopy form, be prepared to email your Excel spreadsheet to the TAs or professor if requested.
Discussion (and only discussion) with other students, professors, friends in the business, etc. on the homework
assignments is encouraged, but all submissions should be done individually. To be clear, all excel spreadsheets and
written text should be the work product of each student. Points will be assigned as follows:
- check plus = 7
- check = 5
-check minus = 3
Late submissions that are emailed to the Professor and TAs within 24 hours of the deadline will be allowed but can
receive a maximum of 4 points. All homeworks after that time can receive a maximum of 2 points.
Group Project (30 points):
All three components to the project (initial drafts, a final version, and a live presentation in Class 11) will all be
considered in the grading and will each count for 10 points. All group members will receive the same grade. You will
have the option to choose your own five-person group or be randomly assigned.
Final grades:
Final grades will be assigned based solely on a student’s ranking versus the rest of the class using the above 100-point
system. The professor, at the end of the semester, will determine within what point-range different grades are earned
(i.e., an H, HP, etc.)
CLASSROOM NORMS AND EXPECTATIONS
Guest Speakers:
Most classes will have guest participants who will participate in interactive debate with students. Readings will
sometimes be assigned in advance of class in order to allow the students to prepare for specific cases which the
speakers will reference. Backgrounds of the guest speakers are diverse, including portfolio managers, turnaround
advisors, lawyers, etc.
Miscellaneous:
-Laptops cannot be used during class regardless of purpose (except when specifically permitted in advance by the
professor, as shown on the calendar).
- No recording devices of any kind are allowed.
- Please turn cell phones off.
- No guests are allowed for any portion of any class.
- Please start the subject line of any emails you send with “Distressed Class” so that the professor and TAs can
periodically go back and screen for emails we may have missed.
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