Bankruptcy is back – at least in the hopes and dreams of heavily capitalised investors jockeying over a finite amount of distressed debt. The wave of bankruptcies expected by some has yet to materialise. But, as a range of US companies descend toward default, distressed debt investors are spending long days sniffing out so-called fulcrum securities that could make or break their funds when debt-burdened companies reorganise.

Some 15 US distressed debt funds raised a total of $33bn in 2007, four times the amount in 2006, according to Private Equity Intelligence. If the 34 funds raising capital this year hit their targets (perhaps a stretch), the pool of vulture capital will balloon by another $47bn. Distressed debt investors seeking to win control of a bankrupt business, in what is called a loan-to-own scenario, can choose from several courses of action. One entails identifying and buying fulcrum securities from the layer of a firm’s capital structure they believe is most likely to convert into equity once the company is reorganised.