Creditor Negotiations & Debt Restructuring Flashcards
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Read the first 6 Creditor Negotiations & Debt Restructuring flashcards as text
What is a debt-for-equity swap in restructuring?
Answer: Converting creditor debt obligations into ownership shares in the company
A debt-for-equity swap converts outstanding debt into equity ownership, reducing the debt burden while giving creditors an ownership stake in the potentially recovered company.
What is an out-of-court workout?
Answer: A negotiated restructuring agreement between the company and creditors without formal bankruptcy
An out-of-court workout is a restructuring agreement negotiated directly between the debtor and its creditors, avoiding the costs and delays of formal bankruptcy proceedings.
What is the absolute priority rule in bankruptcy?
Answer: Senior creditors must be paid in full before junior creditors receive any distribution
The absolute priority rule requires that senior creditors be paid in full before junior creditors receive any distribution, following a strict hierarchy of claims.
What is a standstill agreement?
Answer: An agreement where creditors temporarily refrain from enforcing their rights
A standstill agreement is a temporary arrangement where creditors agree not to enforce their rights or accelerate debts, giving the debtor time to develop a restructuring plan.
What is debtor-in-possession (DIP) financing?
Answer: New funding provided to a company during bankruptcy that has priority over existing debt
DIP financing is new credit extended to a company in bankruptcy that typically has super-priority status, providing essential liquidity to fund operations during restructuring.
What is a cramdown in bankruptcy restructuring?
Answer: Court approval of a reorganization plan over the objection of dissenting creditor classes
A cramdown allows a bankruptcy court to confirm a reorganization plan even when one or more classes of creditors vote against it, provided certain fairness requirements are met.