- 1). Find a company that is approaching or is in the middle of bankruptcy proceedings. This debt is distressed because the company cannot pay it off, and so creditors owed will be more likely to sell. This is because they will be trying to recoup as much of their debt as possible and a relationship with the distressed company is no longer a way to do this.
- 2). Assess the actual value of the company. The market has determined that its value is zero (or close to it), but you may recognize potential in it or see an opportunity to sell off its assets for a profit. Assets that have value include things like real estate, equipment and physical stock -- assets that you could potentially sell off if you acquire the company.
- 3). Disregard the equity (stock) value. In a bankruptcy proceeding, stock is essentially made worthless because the investors who bought stock are paid off last, if at all.
- 4). Assess the bank value, the value of the company's assets and other means of assessing value. Other means include things like the potential future profitability should you become the owner of the company. This is extremely complex, so if you don't have the necessary expertise, you should hire an expert, such as a lawyer, investment banker or both.
- 5). Negotiate a deal to purchase the debt. Creditors are often willing to sell for points on the dollar because they are happy to recoup some of their debt. This means you can probably negotiate a bargain price. Make sure you don't offer too attractive of a deal; after all, your goal is to make money.
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