Special situation explained

A special situation in finance is an atypical event which has the high potential to alter the future course of a business, materially impacting the company's value. The connotation of the event may be both positive (for example, merger or acquisition) and negative (conflict, distress, etc.) The notion also covers corporate restructuring and corporate transactions, such as spin-offs, share repurchases, security issuance/repurchase, asset sales, or other catalyst-oriented situations. Further, a shareholders conflict is also considered a special situation.

Seeking for and investing in special situations is a strategy pursued by a number of investors. To take advantage of a special situation, a hedge fund manager must identify an upcoming event that will increase or decrease the value of the company's equity and equity-related instruments.^[1]

Definition

There is also a definition of special situation by Benjamin Graham:

Classes of special situations

In his well-known book Security Analysis, Benjamin Graham divides special situations into six classes:^[2]

• Class A: Standard arbitrages, based on a reorganization, recapitalization or merger plan
• Class B: Cash payout, in recapitalization or mergers
• Class C: Cash payments on sale or liquidation
• Class D: Litigated matters
• Class E: Public utility breakups
• Class F: Miscellaneous special situations

See also

• Alternative investments
• Bankruptcy
• Default (finance)
• Distressed securities
• Going concern

External links

• What's Special About Special Situations Fixed Income?
• Special Situation Survey by Forbes
• Goldman Special Situation Profit Seen at Risk With Volcker Rule
• Fund.com Special Situations Tracker

Notes and References

1. Web site: HFR I Strategy Definitions . Hedge Fund Research Inc. . 17 March 2011.
2. [Benjamin Graham]