CTP CTP Capital Markets & Financing Alternatives 2

Question 1

A company executes an 'out-of-court exchange offer.' What is occurring?

Accepted Answer

The company offers existing bondholders new securities at modified terms to reduce debt without filing bankruptcy

Answer

An exchange offer is a voluntary, out-of-court mechanism to reduce or modify debt by swapping old securities for new ones with different terms, avoiding the cost and delay of bankruptcy.

Question 2

In a distressed situation, what is a 'pre-packaged bankruptcy'?

Accepted Answer

A Chapter 11 filing where the debtor has obtained creditor votes on the reorganization plan before filing

Answer

A prepackaged bankruptcy pre-negotiates and votes on the reorganization plan before filing, dramatically compressing the time and cost of the court process.

Question 3

What distinguishes a 'term loan B' (TLB) from a traditional bank term loan in leveraged finance?

Accepted Answer

TLBs are held by institutional investors, have minimal amortization, and trade in secondary markets, making them common in highly leveraged structures

Answer

Term Loan B structures are designed for institutional lenders like CLOs and hedge funds, with bullet-like repayment profiles that make them flexible for leveraged transactions.

Question 4

What is the role of a 'backstop party' in a rights offering?

Accepted Answer

A party that commits to purchase any unsubscribed shares, guaranteeing the capital raise closes

Answer

The backstop party assumes the underwriting risk of the rights offering, ensuring the reorganized company raises the full targeted capital even if other stakeholders don't exercise their rights.

Question 5

Which metric do lenders most commonly use to size debt capacity for a distressed borrower seeking exit financing?

Accepted Answer

Total debt / EBITDA (leverage ratio), typically benchmarked against comparable restructured companies

Answer

Leverage ratios set the ceiling on how much debt the reorganized company can support relative to its projected cash earnings, forming the basis of exit financing sizing.

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CTP - Certified Turnaround Professional Practice Test

CTP CTP Capital Markets & Financing Alternatives 2