One of Matlin's biggest scores was his 1999 purchase of junior bonds of the failing paging service provider PageNet at about 25 cents on the dollar. Its bonds rebounded to 80 cents only months later. Dave is the Babe Ruth of the game. Another vulture all-star is Cerberus Partners' Stephen Feinberg, who has been managing distressed funds since 1985. Last year he targeted collapsed department store operator Nagasakiya.
Some pros aim to trade their bonds for equity in a reorganized company.
In a stalemate, a federal bankruptcy judge carves up the carcass. No wonder these workouts are often combative affairs, with members duking it out over nickels and dimes. Add Icahn to the mix and workouts become Jacobean dramas. Take Marvel Entertainment Group, which was controlled by another hard case, billionaire Ronald Perelman. Perelman, who has scooped up his share of troubled securities, is a formidable dealmaker.