CTP CTP Capital Markets & Financing Alternatives 1

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

DIP financing provides critical liquidity during Chapter 11 by granting the new lender first priority on collateral, making it attractive despite the borrower's distressed condition.

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 fulcrum security is pivotal in restructuring because holders at that level stand to receive equity or negotiated recoveries when the reorganized company is valued.

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

A rights offering gives qualifying stakeholders the opportunity to inject fresh capital into the reorganized entity, often backstopped by a committed group to ensure the raise closes.

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

Second lien debt allows a company to raise more secured financing than first lien lenders will provide alone, accepting junior collateral position in exchange for higher yield.

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 credit bid lets a secured lender convert its outstanding claim into ownership of the collateral, effectively acquiring the assets for the value of the debt owed to it.

CTP - Certified Turnaround Professional Practice Test

CTP - Certified Turnaround Professional Practice Test

CTP CTP Capital Markets & Financing Alternatives 1