Investor hysteria unfairly punished this company – and Martin saw a chance to get in at rock-bottom.
Here’s how he described the opportunity:
"Crude oil prices plunged to under $20 a barrel, their lowest level in 34 years, during the brief, pandemic-induced 2020 recession.
Half of the high yield bonds were trading at distressed levels. Offshore drillers’ bonds were among the hardest hit energy issues.
One of Transocean’s major rivals filed for bankruptcy, which ironically seemed likely to make it a tougher competitor, since it would be freed of much of its debt obligations.
Transocean helped ensure that it would not follow that company into Chapter 11 by successfully refinancing a big chunk of its nearer-term maturities.
There was a setback as the company consequently came under added pressure for legal reasons.
Some of its bondholders claimed that the company was in default as a result of pledging some assets that were already pledged to them.
A court ruling in Transocean’s favor on that matter removed some of the clouds hanging over it.
With the crude price up to around $60 a year after the recession began, Transocean’s business began to stabilize and the market’s fears of a default eased."
And then boom… a 238% gain!
It’s not quite as lucky as Zach Bodish’s find.
But then again… how often are Picasso prints sitting by the cracked Folgers coffee pot at your local junk shop?
Distressed investing is a far more predictable — and replicable — way to earn a return on your investment.
Of course, there’s still the question of how we find companies that look scary, but have a low actual risk of default…
And we’ll show you exactly how that part of the equation works next.
