Debt Restructuring & Management Flashcards

What is a 'rights offering' in the context of a Chapter 11 plan of reorganization?

Answer: An opportunity for existing creditors to purchase new equity in the reorganized debtor, often at a discount

A rights offering gives qualifying creditors the opportunity to buy newly issued shares in the reorganized company, providing the debtor with exit financing while giving creditors an upside opportunity.

Under a confirmed Chapter 11 plan, what is the effect of the 'discharge' on pre-petition debts?

Answer: The debtor is released from personal liability for pre-petition debts except as provided in the plan

Plan confirmation and substantial consummation results in a discharge releasing the reorganized debtor from pre-petition obligations, with creditors limited to plan distributions as their sole recovery.

What is 'make-whole' premium in the context of debt restructuring?

Answer: A prepayment fee calculated to compensate lenders for lost future interest payments when debt is repaid early

A make-whole premium compensates bondholders for the present value of future interest payments they would have received had the debt not been prepaid or restructured early.

Which type of restructuring transaction involves the debtor buying back its own distressed bonds in the open market at a discount?

Answer: Open market repurchase

An open market repurchase allows the debtor to quietly buy back its own discounted bonds from willing sellers, reducing outstanding debt and generating a gain on extinguishment.

In a restructuring, what does 'enterprise value' represent and why is it critical?

Answer: The total value of the reorganized company used to determine how much creditors will recover under the plan

Enterprise value represents the total going-concern value of the reorganized company, which drives plan feasibility and the allocation of value among creditor classes.

What is a 'contested matter' as opposed to an 'adversary proceeding' in bankruptcy?

Answer: A contested matter is resolved by motion within the main bankruptcy case while adversary proceedings are separate lawsuits governed by Part VII of the Bankruptcy Rules

Contested matters are disputes resolved by motion in the main case under Rule 9014, while adversary proceedings under Rule 7001 are separate civil actions requiring a complaint and summons.

When evaluating a distressed company's restructuring viability, what does 'liquidity runway' measure?

Answer: The period of time the company can continue operations given its current cash position and projected cash burn rate

Liquidity runway measures how long a distressed company can sustain operations before exhausting cash, which directly determines the urgency and type of restructuring action needed.