Category II Alternative Investment Funds (AIFs) have become a core institutional vehicle for distressed and special-situation investing in India. For companies in stress, they represent a serious financing channel, but only if the opportunity is presented at institutional quality.
What Category II Means in Practice
Category II funds generally invest in unlisted companies through debt, structured debt, quasi-equity, and selective equity positions depending on mandate. They are often suited to situations where banks cannot expand exposure but the business remains fundamentally salvageable.
How Distressed Funds Usually Evaluate Opportunities
- Business quality: Is there a real operating franchise to revive?
- Security quality: Are charges enforceable and sufficiently covered?
- Cash-flow quality: Can debt service be restored under conservative assumptions?
- Governance quality: Is reporting transparent and decision-making credible?
- Exit quality: Is there a practical de-risk and monetization pathway?
Typical Deal Structures
- Senior secured debt with covenants and milestone-linked disbursement.
- Mezzanine or structured instruments with return enhancement.
- Debt plus warrants or conversion options in turnaround cases.
- Consortium participation with ARC or co-lender frameworks.
Data Room Readiness Checklist
- Three-year financials and current management accounts.
- Lender-wise debt schedule, security map, and default timeline.
- Top contracts, litigation tracker, and statutory compliance status.
- Plant and operational data, utilization, and restart model.
- 18-24 month integrated business plan with sensitivity cases.
AIF investors reward clarity. The more transparent and realistic the preparation, the faster the process moves from interest to signed term sheet.
Explore AIF Placement