Explain what defines distressed debt, the funding routes open to a troubled issuer, and the approaches investors take in distressed deals

Distressed debt trades at a deep discount and a very wide spread because default is likely or has occurred. A troubled issuer can amend and extend loans, seek waivers, offer exchanges, sell assets, raise rescue capital, or file for court-supervised reorganisation or liquidation, where debtor-in-possession financing gains super-priority. Investors may buy cheap debt and await recovery, take an active non-control role on a creditor committee, or pursue loan-to-own by buying claims that convert into control of the reorganised equity. Recoveries follow absolute priority. The key step is the fulcrum security: the most senior class that enterprise value does not fully cover. The trap: misjudging it means buying claims that are fully covered, with little upside, or will be wiped out.