CTP CTP Capital Markets & Financing Alternatives

Question 1

What is 'debtor-in-possession' (DIP) financing?

Accepted Answer

A loan provided to a Chapter 11 debtor that has super-priority status over most pre-petition claims

Answer

A government grant available to distressed companies

Answer

A subordinated note issued to existing equity holders

Answer

A revolving credit line extended by the pre-petition lender only

Question 2

In capital structure terms, what does 'fulcrum security' mean?

Accepted Answer

The security class at which enterprise value is exhausted, giving that class negotiating control in restructuring

Answer

The highest-priority secured debt in a company's capital stack

Answer

The equity tranche of a leveraged buyout

Answer

A government-backed bond issued during a bailout

Question 3

A distressed company seeks a 'rights offering' as part of its Plan of Reorganization. What does this involve?

Accepted Answer

Existing creditors or shareholders receive the right to purchase new equity at a discount to fund the reorganized company

Answer

The company auctions its assets to the highest bidder

Answer

The debtor issues new secured debt to replace old unsecured claims

Answer

The company converts preferred stock to common stock

Question 4

What is the primary purpose of a 'second lien' loan in a leveraged capital structure?

Accepted Answer

It provides additional debt capacity secured by the same collateral as the first lien, but with subordinated repayment priority

Answer

It replaces the first lien loan upon default

Answer

It is unsecured mezzanine debt used only in investment-grade transactions

Answer

It converts automatically to equity upon bankruptcy filing

Question 5

Which of the following best describes a 'credit bid' in a Section 363 asset sale?

Accepted Answer

A secured creditor uses its debt claim as currency to purchase assets rather than paying cash

Answer

A distressed buyer offers credit terms to the seller post-closing

Answer

The court sets a minimum bid based on appraised asset value

Answer

A stalking horse bidder waives its break-up fee

Question 6

What is 'mezzanine financing' in the context of a capital structure?

Accepted Answer

Subordinated debt or preferred equity that sits between senior secured debt and common equity, typically carrying higher yield and equity conversion features

Answer

Senior secured revolving credit provided by commercial banks

Answer

Government-guaranteed loans for distressed manufacturers

Answer

A bridge loan issued immediately prior to a Chapter 11 filing