Explain loan-to-own: how does a fund acquire a company through its debt, and what are the execution risks?

The fund buys the fulcrum debt — the instrument that will convert into ownership in a restructuring — at a discount in the secondary market, then drives or awaits a balance-sheet restructuring in which that debt equitizes: via an insolvency plan, a StaRUG cram-down, or a consensual debt-to-equity swap. Entry price is the key economics: buying senior secured at 60 means owning the company at an implied enterprise value far below what an M&A process would demand. The execution risks are real: valuation fights decide WHERE the value breaks and thus whether your tranche is truly the fulcrum; a competing refinancing or sponsor injection can repay you at par (nice return, no company); process risk in court-driven routes; the need for control positions or blocking minorities within the class; and operational readiness — once you own it, you must actually run a distressed company. German specifics: change-of-control and license issues on conversion, and co-determination realities post-acquisition. It's a strategy for funds with both credit pricing skills and operational muscle.