CIRA Negotiation & Workout Strategies 3

Question 1

In a Chapter 11 restructuring, a Restructuring Support Agreement (RSA) primarily serves to:

Accepted Answer

Lock up key creditor support for a pre-negotiated plan before the formal filing

Answer

An RSA (or 'lock-up agreement') secures commitments from major creditors to support a specific reorganization plan, reducing execution risk and shortening the bankruptcy timeline.

Question 2

Which of the following best describes the 'fulcrum security' in a restructuring?

Accepted Answer

The class of debt at the point in the capital structure where enterprise value is exhausted, giving that class the most negotiating leverage

Answer

The fulcrum security sits at the inflection point in the capital structure where value 'runs out,' making that creditor class the de facto owner of the reorganized company and the key negotiating counterparty.

Question 3

When negotiating with a debtor's secured lender, a financial advisor for the creditors' committee would most appropriately focus on which analytical output first?

Accepted Answer

An enterprise valuation to determine where value breaks in the capital structure

Answer

Enterprise valuation is the foundational analysis in restructuring negotiations because it determines recoveries for each creditor class and identifies the fulcrum security.

Question 4

A 'cramdown' plan under Section 1129(b) of the Bankruptcy Code allows a debtor to confirm a plan over the objection of a dissenting class, provided the plan:

Accepted Answer

Is supported by at least one impaired accepting class and does not unfairly discriminate or violate the absolute priority rule

Answer

Cramdown requires at least one impaired accepting class (excluding insiders), compliance with the absolute priority rule, and no unfair discrimination among classes.

Question 5

In out-of-court restructuring negotiations, 'haircut' refers to:

Accepted Answer

A reduction in the stated principal or face value of debt accepted by the creditor as part of a settlement

Answer

A haircut is the reduction in principal that a creditor agrees to accept below par value, effectively forgiving a portion of the debt as a restructuring concession.

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

CIRA Negotiation & Workout Strategies 3