《精编》utive,Summary

cutiveSummary Thischapterdiscussesfinancialdistress privateworkouts andbankruptcy Afirmthatdefaultsonarequiredpaymentmaybeforcedtoliquidateitsassets Moreoften adefaultingfirmwillreorganize Financialrestructuringinvolvesreplacingoldfinancialclaimswithnewonesandtakesplacewithprivateworkoutsorlegalbankruptcy ChapterOutline 31 1WhatisFinancialDistress 31 2WhatHappensinFinancialDistress 31 3BankruptcyLiquidationandReorganization31 4PrivateWorkoutorBankruptcy WhichisBest 31 5PrepackagedBankruptcy31 6SummaryandConclusions 31 1WhatisFinancialDistress Asituationwhereafirm soperatingcashflowsarenotsufficienttosatisfycurrentobligationsandthefirmisforcedtotakecorrectiveaction Financialdistressmayleadafirmtodefaultonacontract anditmayinvolvefinancialrestructuringbetweenthefirm itscreditors anditsequityinvestors Insolvency Stock baseinsolvency thueofthefirm sassetsislessthanthueofthedebt Debt Insolvency Flow baseinsolvencyoccurswhenthefirmscashflowsareinsufficienttocovercontractuallyrequiredpayments Firmcashflow TheLargestU S Bankruptcies 31 2WhatHappensinFinancialDistress Financialdistressdoesnotusuallyresultinthefirm sdeath FirmsdealwithdistressbySellingmajorassets Mergingwithanotherfirm Reducingcapitalspendingandresearchanddevelopment Issuingnewsecurities Negotiatingwithbanksandothercreditors Exchangingdebtforequity Filingforbankruptcy WhatHappensinFinancialDistress Financialdistress Source KarenH Wruck FinancialDistress ReorganizationandOrganizationalEfficiency JournalofFinancialEconomics27 1990 Figure2 SeealsoStuartC Gilson KoseJohn andLarryN P Lang TroubledDebtRestructurings AnEmpiricalStudyofPrivateReorganizationinFirmsinDefaults JournalofFinancialEconomics27 1990 andLawrenceA Weiss BankruptcyResolution DirectCostsandViolationofPriorityClaims JournalofFinancialEconomics27 1990 ResponsestoFinancialDistress Thinkofthetwosidesofthebalancesheet AssetRestructuring Sellingmajorassets Mergingwithanotherfirm ReducingcapitalspendingandR Dspending FinancialRestructuring Issuingnewsecurities Negotiatingwithbanksandothercreditors Exchangingdebtforequity Filingforbankruptcy 31 3BankruptcyLiquidationandReorganization Firmsthatcannotmeettheirobligationshavetwochoices liquidationorreorganization Liquidation Chapter7 meansterminationofthefirmasagoingconcern Itinvolvessellingtheassetsofthefirmforsalvague Theproceeds netoftransactionscosts aredistributedtocreditorsinorderofpriority Reorganization Chapter11 istheoptionofkeepingthefirmagoingconcern Reorganizationsometimesinvolvesissuingnewsecuritiestoreplaceoldones BankruptcyLiquidation StraightliquidationunderChapter7usuallyinvolves Apetitionisfiledinafederalcourt Thedebtorfirmcouldfileavoluntarypetitionorthecreditorscouldfileaninvoluntarypetitionagainstthefirm Atrustee in bankruptcyiselectedbythecreditorstotakeovertheassetsofthedebtorfirm Thetrusteewillattempttoliquidatethefirm sassets Aftertheassetsaresold afterpaymentofthecostsofadministration moneyisdistributedtothecreditors Ifanymoneyisleftover theshareholdersgetit BankruptcyLiquidation PriorityofClaims Thedistributionoftheproceedsofliquidationoccursaccordingtothefollowingpriority Administrationexpensesassociatedwithliquidation Unsecuredclaimsarisingafterthefilingofaninvoluntarybankruptcypetition Wagesearnedwithin90daysbeforethefilingdate nottoexceed 2 000perclaimant Contributionstoemployeebenefitplansarisingwith180daysbeforethefilingdate Consumerclaims notexceeding 900 Taxclaims Securedandunsecuredcreditors claims Preferredstockholders claims Commonstockholders claims APRExample SupposetheB O DrugCo decidestoliquidateunderChapter7 Assumethattheliquidationvalueis 2 7million Bondsworth 1 5millionaresecuredbyamortgageonthecorporateheadquartersbuilding whichissoldfor 1million 200 000isusedtocoveradministrativecostsandotherclaims afterpayingthis 2 5millionisavailabletopaycreditors Theonlyproblemisthattheunpaiddebtis 4million APRExample UnderAPR allcreditorsarepaidbeforeshareholders andthemortgagebondholdersarefirstinline Thetrusteeproposesthefollowingdistribution BankruptcyReorganization Chapter11 Atypicalsequence Avoluntarypetitionoraninvoluntarypetitionisfiled Afederaljudgeeitherapprovesordeniesthepetition Inmostcasesthedebtorcontinuestorunthebusiness Thefirmisgiven120daystoareorganizationplan Creditorsandshareholdersaredividedintoclasses Requiresonlyapprovalby1 2ofcreditorsowning2 3ofoutstandingdebtAfteracceptancebythecreditors theplanisconfirmedbythecourt Paymentsincash property andsecuritiesaremadetocreditorsandshareholders ReorganizationExample SupposetheB O DrugCo decidestoreorganizeunderChapter11 Assumethatthe goingconcern valueis 3millionanditsbalancesheetisshown ReorganizationExample Thefirmhasproposedthefollowingreorganizationplan ReorganizationExample Andadistributionofnewsecuritiesunderanewclaimwiththereorganizationplan AbsolutePriorityRuleinPractice ReasonsforAPRViolations Creditorswanttoavoidtheexpenseoflitigation Debtorsaregivena120 daywindowofopportunitytocausedelayandharmvalue Managersoftenowne