J-factor risk

CFA Level III
#1

What is the J-factor risk of distressed securities?

#2

J factor is short for judgment. If judgment did not go the way they anticipated

#3

derswap07 Wrote: ------------------------------------------------------- > J factor is short for judgment. If judgment did > not go the way they anticipated whose judgement? Investor’s?

#4

Court’s Judgement

#5

I had ‘judicial’ in my head for J-factor risks. Risks associated with a court ruling…

#6

Did this have to do with doing transactions without judicial precendent or with a company who is being sued and pending a court decision?

#7

I believe it was in regards to restructing under Chapter 11 and the risks involved for the investor in distressed securities.

#8

Yeah, that rings a bell. Thanks Sponge.

#9

I believe it is also mentioned in the Smash & Grab section of derivative arbitrage…

#10

Thanks, Sponge_Bob. Helpful explanation.

#11

This is one of those concepts that sounds a lot more sophisticated than it really is.

#12

This is my understanding of J-factor risk: Investor who bought into these distressed securities (since they are distressed, shorting may be a problem), and hope the verdict from the judicial outcome will be in their favour and hope to gain from a higher equity price. The J-factor risk will be if the verdict did not went in their favour. Make sense?

#13

Anyone else think about this?? “The J-Store just called, and they’re out of you!”

#14

jerk store would have nailed that guy!

#15

this is what i gathered J-factor refers to the “Judge” factor. It refers to looking into the track record of the judge’s ruling in similar chapt-11 cases that he/she has handled in the past. This way you can make an educated guess as to which way the judge will give his verdict in deciding the priority of claims of the various stakeholders and you can then price them accordingly.