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Better Bankruptcies a Positive for Distressed Debt Investors

A shorter, more orderly bankruptcy process is good news for distressed debt investors, but it does shift the game a little bit, says Third Avenue's Jeff Gary.

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Bridget Hughes: I know Third Avenue has been opportunistic in distressed investing for a number of years with Marty Whitman at the helm. He wrote in his recent shareholder letter that he thought there could have been a revolution in reorganizations in 2009 because of the orderly process that some of the companies went through. Is that good news for the fund or could it be bad news?

Jeff Gary: We think its good news. And part of this started from the change in the bankruptcy laws about two years ago where they shortened the timeframe that a company could actually be in bankruptcy. You remember back 10 or 15 years ago LTV was in bankruptcy for over seven years. So now, they've shortened that window whereby the company is essence needs to get out and is incentivized to get out sooner.

Bridget B. Hughes does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.