It would seem to me that, if they had assets which could be liquidated in a fire sale, they could borrow subordinted debt against those assets to buy their unserviceable debt in the open market.


Meaning, suppose Company X has $100 worth of assets. At the moment an imminent banruptcy becomes 99.99% certain, their outstanding debt should be trading at $99, and their preferred stock near zero. Can't they then borrow $100 to buy up all their own obligations?


Or do the bonds never drop to $100 so long as there are ongoing operations? Still, it seems you could always refinance and keep going, and never miss a coupon. What am I missing?


Why do people miss coupons in the real world?


eLROY