IAmNeil

yellayella Wrote:
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> can somebody explain how distressed debt
> arbirtrage works?
>
> - long companys's distressed debt
> - short selling company's equity
>
> case 1:
> if the firm's condition declines, the debt and
> equity will both fallin value; the equity should
> decline more in value, because debt has
> seniority---> OK
>
> case 2:
> if the company's prospects improve, because of the
> priority of interest over dividends, the returns
> to bondholders should be greater that that of
> equity holders, including dividends paid on the
> short position
>
> dont understand case 2 especially in relation to
> dividends paid on the short positions. because i
> have shorted them this shouldnt matter???
> thank you

Can you give the source of where this is written. Volume and page no.