Distressed securities are financial instruments issued by a company that is near to—or currently going through—bankruptcy. Distressed securities can include common and preferred shares, bank debt, trade claims, and corporate bonds. Even a particular security can be considered distressed if it fails to maintain agreement. Because of the company’s inability to meet its financial obligation their financial instruments suffer a reduction in value, although due to this they can offer a high risk investors a potential for high returns. These high risk investors are sometimes called as ‘hawks’

Example– Securities are labeled as distressed when the company issuing them is unable to meet many of its financial obligations. In most cases, these securities carry a “CCC” or below credit rating from debt-rating agencies. Distressed securities can be contrasted with junk bonds, which traditionally have a credit rating of BBB or lower.