CTP Sale Processes & M&A in Distressed Situations 3

Question 1

In a distressed asset sale conducted outside of bankruptcy, which legal mechanism allows a secured lender to conduct a public auction of pledged personal property collateral?

Accepted Answer

UCC Article 9 disposition following the debtor's default

Answer

Chapter 11 Section 363 sale proceeding in federal court

Answer

Delaware Assignment for the Benefit of Creditors (ABC)

Answer

Receivership sale under state equitable jurisdiction

Question 2

An 'Assignment for the Benefit of Creditors' (ABC) in a distressed context is best described as:

Accepted Answer

A state law alternative where a company assigns assets to a third-party assignee who liquidates them for creditor benefit

Answer

A federal court proceeding functionally equivalent to Chapter 7 liquidation

Answer

A restructuring that requires unanimous creditor consent to implement

Answer

A mechanism that provides the same free-and-clear title protection as a Section 363 sale

Question 3

In evaluating a distressed acquisition target, 'EBITDA normalization' refers to:

Accepted Answer

Adjusting reported earnings to reflect sustainable operating performance by removing one-time and non-recurring items

Answer

Converting EBITDA from GAAP to a pure cash-basis accounting measurement

Answer

Adding projected post-acquisition cost synergies to the historical EBITDA figure

Answer

Reducing EBITDA solely to eliminate management fees and related-party transactions

Question 4

Which of the following best describes a stalking horse bidder's primary risk in a Section 363 auction process?

Accepted Answer

The risk of being outbid at auction after investing significant time and resources in due diligence

Answer

The risk that the bankruptcy court rejects the proposed sale on legal grounds

Answer

The risk that the break-up fee will not be approved by the bankruptcy court

Answer

The risk that the purchase price will exceed the debtor's total outstanding secured debt

Question 5

In a Section 363 sale process, 'adequate protection' payments to secured creditors during the bankruptcy case are intended to:

Accepted Answer

Compensate secured creditors for any decline in collateral value occurring during the bankruptcy case

Answer

Guarantee secured creditors receive par value recovery for their full debt claims

Answer

Fund the stalking horse bidder's due diligence and transaction costs

Answer

Provide post-petition interest payments to all creditor classes equally

Question 6

What is the primary procedural distinction between a '363 sale' and a 'plan sale' in Chapter 11?

Accepted Answer

A 363 sale occurs before plan confirmation and proceeds faster; a plan sale requires creditor votes through the full confirmation process

Answer

A 363 sale can only include tangible assets; a plan sale can also include intangible assets

Answer

A 363 sale requires unanimous creditor consent; a plan sale requires only majority approval

Answer

A 363 sale is statutorily limited to transactions exceeding $10 million in total value

Question 7

When advising a distressed company on whether to pursue an out-of-court sale versus a Section 363 bankruptcy sale, which factor is most critical to the decision?

Accepted Answer

The ability to achieve free-and-clear title and the availability of DIP financing to sustain operations during the process

Answer

The preference of the debtor's existing equity holders regarding the form of transaction

Answer

The number of states in which the distressed company currently operates its business

Answer

The prevailing federal funds rate and current leveraged credit market conditions