Hedge funds buy distressed "debt" and the debt is then...

Hedge funds buy distressed "debt" and the debt is then restructured through a merger, takeover, recapitalisation or the like along with managerial rejuvenation (sacking).

They buy this debt under the assumption that if the company as a going concern was to become bankrupt or close to it (SGH) , that the current asset values substantially exceed the true market valuation, in this case the current market cap.

So in the case of SGH, the hedge funds obviously think that the company can and will be valued at more than say the circa $250m (figure not 100% known) they outlayed for the debt.

So assuming the SGH is worth more than $250m, the next step is for the hedge fund to get their debt turned to profit as quickly as possible. They are not thinking about shareholders, let's get that clear.

The initial leverage the hedge funds have here is that they carry all debt to the company $700m+ that far outweighs the amount paid for the debt.

What they can do is gain control of the company, put it into a scheme or arrangement, and do a debt for equity deal to gain full control.

In control, the board is wiped, or mostly, and restructured to enable the inevitable selloff of assets to at very least get back initial funds paid.

I could see for example the UK assets sold off into a private equity parcel and say they gets their initial stake back on the sale (maybe).

So now they have (assuming) 95% of SGH script, full control, and still have some form of debt over the company, along with any assets it then holds.

Its then a free hit as to how much they can make over time from the new entity.
There are many ways to skin the cat so to speak, but for anyone who thinks they hedge funds are in it for shareholders, please don't be so naive.

You will be diluted around 95% (as whispers think) in the next few weeks, so it is a long way back from there IMO. I'd rather be an investor in the debt in this case then a shareholder reliant on the hedge fund to look after you.

PS: Wouldn't be at all surprised if the new hedge funds also hold or have held a large short position for some time in the stock, a double win.