Bankruptcy Investing: The Service List

Bankruptcy investing is very much a relational business. While one could get by reading dockets and SEC filings, too much is going on in and out of the the court room and certain issues are too complex to be navigated without the help of others. Furthermore, I am not a lawyer, and I often lean on lawyer friends to help me with certain nuances of the code and the way certain courts and judges lean on various issues.

The Service List is a document that lists the names, addresses, phone numbers, and emails of interested parties in a bankruptcy case. Here is an example from Rescap: Rescap's Service List. These parties receive relevant bankruptcy docket entries as they are filed with the court. Many times you can find these service lists at the Claims Agent sites in Excel format (they are provided by the Debtor).

And then you know what you do with this document? You pick up the phone and call until your fingers hurt.

Some parties will not talk to you. Debtors Counsel will be very cagey speaking to you as well to not divulge any MNPI (material non public information). But some parties, more than likely lawyers representing an equity or creditor committee will talk to you and provide you salient details on the case and issues affecting recoveries. FAs will also talk to you. Both groups want to repeat business (further engagements) and you, as a potential customer, can provide that.

What kind of questions to ask? Most bankruptcy cases boil down to a few major issues that will affect recoveries. Hell, ask that question itself: What are some of the issues here that will swing the valuation? Who should I talk to to get more clarity on these issues. Rinse and repeat.

I wish I could find the quote but I remember a comment about Seth Klarman and Michael Price during their time together under Max Heine. The essence of the quote was that you tease out and pull the strings that lead to a strong determination of the intrinsic value of securities. (If anyone has the quote, can you email it to me).

And to make sure people will answer your calls in the future, provide some value to your counter-parties. Maybe a law firm or an FA would like to know who is involved in a certain situation to possibly pitch their services to. Maybe a trustee needs some information about the trading activities of a security. Or Maybe a large unsecured creditor has no idea where a company's bonds are trading. And check in on people every once in a while to see what they are working on and how you can help them (usually help them make more money).

One of the reasons I find bankruptcy investing so interesting is the people aspect of it. Some of my closest friends are also distressed debt professionals, relationships developed over many years working together through situations (good and bad). Sometimes you are on the same side of the fence, and other times you are in a heated valuation fight of a debtor. Surprisingly, over the last few months I've made a point to network via the blog more aggressively and its been a great (and profitable experience). It is very difficult to be an excellent distressed investor without an excellent network of contacts to draw experiences and knowledge (often times very technical) from. Get out there and start dialing and adding value to the community - it will pay itself in dividends (and returns) many times over.