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Distressed Debt Restructuring

Distressed Debt uses a real-world case company to discuss the options for dealing with a company on the brink of bankruptcy. With this playlist explore risk assessment, debt capacity, liquidity analysis, and the process of restructuring debt and valuing a struggling company in Credit Analysis. Looking at various exit scenarios and assessing how to minimize losses to the creditors.

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11 Lessons (57m)

Show lesson playlist
  • Description & Objectives

  • 1. Introduction Summary

    12:20
  • 2. Case in Point Walk Through

    02:29
  • 3. Debt Capacity Exercise

    05:09
  • 4. Comparables Exercise

    04:32
  • 5. Liquidation Value Exercise

    03:17
  • 6. Debt Restructuring Exercise

    06:41
  • 7. Liquidation Analysis

    03:03
  • 8. Debrief Part 1

    03:19
  • 9. Debrief Part 2

    04:39
  • 10. Debrief Part 3

    03:51
  • 11. Debrief Part 4

    08:12

Prev: Debt Capacity

Liquidation Value Exercise

  • Notes
  • Questions
  • Transcript
  • 03:17

Determining the liquidation value of a company's assets.

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Case-study-Distressed-Debt-Restructuring-Empty_5Case-study-Distressed-Debt-Restructuring-Full_5

Glossary

credit debt recovery distressed debt Leveraged Finance liquidity loan workouts problem loans Restructuring
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Transcript

For question seven, we need to do a liquidation value exercise. And what we're simply gonna do here is look at the balance sheet at book value and apply a recovery rate for each of the asset classes. So obviously for cash, we'll be applying it times 100%. Accounts receivable are being valued at about 75%. For our inventory, we have to look at the inventory based on the type of inventory that it is. And so we have different recovery rates. Work in progress is given zero, whereas raw material and finished goods are given 75%. We also have some replacement parts in here as well that we're valuing at 20%. And we'll continue to apply the recovery rates down through the assets and see how they change. Now for property, plant, equipment, we're valuing the land and the building at 75%, but some of the machinery and equipment as well as construction in progress significantly lower and that gives us a total for property, plant, equipment. Now we'll take a look at the intangibles, which again depends on the nature of what they are. So here we're going to range between zero and 25%. Restricted cash, in this case, because it's a liquidation, it can be used, most likely it would be used toward paying down debt anyway. So we're valuing that at 100%. Other random assets down to zero. And what this gives us is a total assets of 1,359.8 on a recovery basis. Now, of course, we have to pay off the people that Verso owes money to. It's also likely that the trade payables, the accounts payable because they're unsecured would typically get paid back after the creditors have been satisfied. That's what typically happens, certainly in the US, that is what would happen. As far as the salaries and any other accrued expenses, it depends on what they are. They might get paid first. So for the sake of simplicity since we don't have a lot of them, I'm just gonna assume that they all get paid off and that gives us an asset net of current liabilities of 979.8. Now the last thing we need to do is factor in the costs of liquidation. So our liquidation value is the 979.8 and we're using an assumption here that there's about 120 million of costs that go into this process, which include accountants, consultants, lots of lawyers, possibly court costs as well. And that's gonna take away from the overall liquidation amount and therefore the liquidation proceeds will be the net of those two, the 859.8.

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