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One would imagine that capital regulations would provide a convenient expert view of the (in my view artificial) distinction.
It's not really what they do. NAIC will give you a capital charge for almost any asset if you want to put in in your insurance company. The question is then what do you define as an "asset". Even a super-leveraged rag-bag of interests in PE funds is an asset in my book.
I don't think distressed debt is relevant per se, although I suppose you could say that a fraction of the underlying issuers would be expected to become distressed through the cycle.
NickCJ
I think you nicely answered your own question! One would imagine that capital regulations would provide a convenient expert view of the (in my view artificial) distinction. To cut and shut distressed debt into shiny products is surely the différance where this all falls apart.