TMA Financial Restructuring 2

Question 1

Which type of lender typically has the highest priority claim in a bankruptcy liquidation?

Accepted Answer

Secured senior lenders

Answer

Secured senior lenders hold claims backed by collateral and are paid first in a liquidation, ahead of unsecured creditors and equity holders.

Question 2

What is the absolute priority rule in Chapter 11 bankruptcy?

Accepted Answer

Creditors must be paid in full before equity holders receive anything

Answer

The absolute priority rule requires that senior creditors be paid in full before any value flows to junior creditors or equity holders in a reorganization plan.

Question 3

What is an out-of-court restructuring also commonly called?

Accepted Answer

Workout

Answer

An out-of-court restructuring is often called a workout, where a company negotiates directly with creditors to modify debt terms without filing for bankruptcy.

Question 4

Which financial statement is most critical when assessing a company's immediate liquidity in a crisis?

Accepted Answer

Cash flow statement

Answer

The cash flow statement, particularly the 13-week cash flow forecast, is most critical in a distress situation to assess whether the company can meet near-term obligations.

Question 5

What is covenant relief in the context of bank debt restructuring?

Accepted Answer

Temporarily waiving or modifying financial covenants a company has breached

Answer

Covenant relief involves lenders temporarily waiving or amending financial covenants that a distressed borrower has violated to avoid triggering default.

TMA - Turnaround Management Association Practice Test

TMA - Turnaround Management Association Practice Test

TMA Financial Restructuring 2