67 WALL STREET, New York - March 27, 2014 - The Wall Street Transcript has just published its current Investing Strategies Report offering a timely review of top stock picks for serious investors by experts. This special feature contains extensive industry commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Activist Investing -- Distressed Investing -- Vulture Investing
Companies include: Owens Corning (OC), Verizon Communications Inc. (VZ), Apple Inc. (AAPL) and many others.
In the following excerpt from the Investing Strategies Report, a distressed investing expert discusses his methodology and top opportunities for investors:
TWST: Could you give me an overview of Schultze Asset Management and its investment philosophy?
Mr. Schultze: Schultze Asset Management is a private investment firm and registered investment adviser. I founded the firm in February of 1998, so this is our 16th anniversary. Our specialty since inception has been focusing on distressed and event-driven investing. We focus primarily on the United States and invest long and short, up and down the capital structure of U.S. companies. That's a high-level view of our investment philosophy.
The idea behind it is investing in an area where we believe we have an edge and can do well versus other participants in the market. Many of the deals in which we invest are companies that have gone through some sort of distressed event, be it reorganization, bankruptcy or litigation of some sort or another. Our firm has expertise in this niche.
I am actually a lawyer by training. I went to Columbia Law School and Columbia Business School. For me, investing in these types of deals is really fun and interesting, because there are certain inefficiencies where you can identify securities that are mispriced, both on the long and the short side, and sometimes you can get involved to create catalyst events that will drive those securities closer to fair value.
TWST: What type of catalyst events?
Mr. Schultze: So the typical activist investor will buy into a publicly traded stock and then maybe try to agitate for change. What's different about our style of investing is that we will invest up and down the capital structure of U.S. companies, long or short. We don't typically do activist investing on the short side, but on the long side we may invest in the companies' bonds or bank loans. Alternatively, we may invest in its stock after it is restructured or after it has emerged from a distressed situation.
When we are investing in a company's fixed income securities, be it bonds or loans, we may become activist in the company's restructuring by helping to negotiate a plan of reorganization or getting involved on a creditor committee. That's the activist participation we typically engage in when we own fixed income securities that are distressed. Later, after the company is reorganized, there are a number of things we may do as an activist investor in their post-distressed securities. In that case, we would typically focus on their common stock.
A very interesting thing occurs when companies restructure in the U.S. The change often comes with a cultural change in the managerial philosophy after a distressed situation. Some of your readers may know that a lot of these events occur in bankruptcy. So after a company goes through a bankruptcy, there tends to be a new cultural dynamic; it's an aversion to do anything that may take the company back to that place again, so we find, especially with companies that have emerged from distress, that they can be overly conservative with their capital structure.
As such, companies that would normally have an efficient capital structure, which includes some debt, tend to avoid any borrowing at all. That dynamic creates market inefficiency. It creates opportunity where someone like us can take a position in the common stock and, if it's cheap enough, create additional value by agitating for a change with the focus on modifying the capital structure to be more efficient. Maybe the issuing company can borrow some money and use the proceeds to pay a special dividend to shareholders...
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.