Loan to own

Loan to own is a control strategy that happens to be executed in the credit market. The investor is not buying a claim for its yield or even for its recovery. It is buying the specific claim that a restructuring will exchange for shares.

That is why it aims at the fulcrum rather than at whatever is cheapest. Claims senior to the break are money good and get repaid or reinstated at close to par, which can be a fine return and hands over no ownership. Claims junior to the break receive a token stake or nothing. Only the class the value runs out inside is converted.

So the trade is a view on enterprise value expressed as a purchase, and an error of one class is fatal rather than merely expensive: buy too high and you are repaid, buy too low and you are wiped out. The diligence goes into where value breaks, not into which paper looks cheap.

Position size is a second and separate judgement, and it is about votes. Buying above the level that blocks a class turns the holding into leverage, because the company must then either improve the terms or ask a court to bind the class over its objection, which costs time and contested valuation evidence.

The risks are real. The paper is illiquid, the timetable belongs to the company and the court, the equity that arrives is unlisted and slow to exit, and a valuation that moves before documentation can quietly destroy the thesis.