Liquidity
Nine weeks of cash
Your 13-week cash flow forecast shows the company running out of cash in nine weeks. The CFO wants to wait for next quarter's results before telling the board.
All simulators
Plans, votes and the valuation fight
Restructuring simulator
Your seat: Restructuring advisory, debtor side
When a company can't carry its debt, you propose who gets what. Value it too high and seniors vote no; too low and juniors are wiped and fight. Out of court everyone must agree; in Chapter 11 the judge decides who can be bound.
What you'll learn
- How the waterfall, the fulcrum and plan value decide recoveries by class
- What DIP financing, absolute priority and cramdown require in Chapter 11
- How liability management, credit bids and exchanges move value between creditors
Who it's for
Restructuring, distressed debt and special situations candidates.
It works as interview prep: you'll have made the calls an interviewer asks about, and seen what happens when you get them wrong.
Decisions from your first year
Three calls a year. Here's the kind of thing that lands on your desk before your first promotion.
Strategy
Exchange or filing?
The capital structure is simple: one term loan, 85% of it held by an organised group, and trade creditors who are vital to the business. The group will support a debt-for-equity swap.
Valuation
Find the fulcrum
The business is worth about $600m. Claims: first lien $400m, second lien $300m, unsecured $200m. You need to know who to negotiate the equity with.
The ladder
Each rank has its own bar for returns and standing. Clear both to move up.
- Analyst
- Associate
- Vice President
- Director
- Managing Director
- Group Head
Terms you'll use
- Chapter 11
- US court reorganisation: the company keeps operating while creditors vote on a plan.
- DIP financing
- Debtor-in-possession loans to a company in Chapter 11.
- Absolute priority
- No junior class gets value while a dissenting senior class isn't paid in full.
- Cramdown
- Confirming a plan over a class that voted no.
- Fulcrum security
- The class where value runs out, which usually takes the reorganised equity.
- Credit bid
- A secured lender buying collateral by bidding its claim instead of cash.
- Default and recovery
- The borrower stops paying; you collect what the collateral is worth.