To be sure, many companies will refinance their debts well before the maturity dates-indeed, strong demand for new junk bond offerings since the beginning of 2009 had, as of the end of March, already reduced the maturity schedule for the next four years by $196 billion, or by more than 25%, according to J.P. Morgan. But investors warn that these bond refinancings, dubbed by many in the industry as "extend and pretend" deals because of their deferred maturities-will merely delay inevitable bankruptcies or restructurings.

For many of the companies refinancing today, "the net debt position has not improved, and in fact, free cash flow has deteriorated," writes Jeff Gary, portfolio manager of the Third Avenue Focused Credit Fund, in a recent investor letter.

Companies facing an imminent liquidity squeeze are staving off bankruptcy by swapping their debt for stock. For example, Blockbuster Entertainment, the movie rental chain, is negotiating with bondholders to refinance $300 million in bonds due September 2012. Blockbuster has said it may offer shares to the bondholders. Distressed-debt investors participating in the exchange are betting that Blockbuster has a credible plan to revive its business, which has been hurt by competition from Netflix and online video offerings. The company has recently negotiated deals with movie studios that give it exclusive access to new releases for one month. But if management can't boost profits, Blockbuster's debt exchange could be a short-term fix.

Some vulture investors are targeting smaller, lesser known businesses unable to access the public debt markets. More than 86% of all high-yield bonds issued in the last year have been for companies looking to raise more than $300 million, according to J.P. Morgan.

"The high-yield bond market right now is the tale of the haves versus the have-nots," says Michael Fineman, manager of distressed debt research for Third Avenue, a $16 billion investment firm that invests frequently in distressed securities. (Its flagship Third Avenue Value Fund currently has around 5% invested in distressed debt.) Smaller companies traditionally turn to regional banks, but those banks are overwhelmed by troubled real estate loans on their own books, he says.

Fineman is also looking at industries confronting a cyclical trough that need to buy time from lenders. For example, the rates at which independent power producers can sell electricity are influenced by the price of natural gas, which is trading at depressed levels. "There are several companies in that industry with overleveraged balance sheets," he says. He points to Bosque Power, a Texas producer with $400 million in debt that was acquired by a Bahraini investment firm in 2008.

Another continued area of focus for distressed debt investors is financial services. Some have already profited handsomely by investing in the debt of Lehman Brothers, the bankrupt investment bank, which is being liquidated. Other funds, such as Mutual Series, have invested in CIT, a lender to middle-market companies. CIT emerged from bankruptcy in December.

There are also opportunities for investors to recapitalize the banking system-197 banks have been seized by the FDIC since the beginning of last year, and the agency has another 700 on its watch list of potential failures. Increasingly, the regulator is seeking partners in the banking industry as buyers of these seized banks. "We are doing these deals selectively, if there's good management in place," says Fineman. Some vulture investors participated in a recent $1 billion financing by Banco Popular, the Puerto Rican banking company, which expects to use some of the proceeds to buy weaker competitors from the FDIC.

Another opportunity for investors will be the restructuring of the commercial real estate industry, as $1.3 billion in U.S. commercial property loans come due between 2010 and 2014, according to a recent report by corporate consulting firm McKinsey.

Vulture investors have made surprisingly quick profits on shares of companies recently emerging from Chapter 11. In past cycles, these stocks typically traded poorly at first because companies just out of bankruptcy are poorly followed by stock analysts. But this time, the cycle appears different. Shares of CIT are up 47% year to date. And the stock of Lear Corp., an auto parts supplier that exited Chapter 11 last November, has risen 20% this year.