第三十一章 财务困境

McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-0ExecutiveSummary•Thischapterdiscussesfinancialdistress,privateworkouts,andbankruptcy.•Afirmthatdefaultsonarequiredpaymentmaybeforcedtoliquidateitsassets.Moreoften,adefaultingfirmwillreorganize.•Financialrestructuringinvolvesreplacingoldfinancialclaimswithnewonesandtakesplacewithprivateworkoutsorlegalbankruptcy.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-1ChapterOutline31.1WhatisFinancialDistress?31.2WhatHappensinFinancialDistress?31.3BankruptcyLiquidationandReorganization31.4PrivateWorkoutorBankruptcy:WhichisBest?31.5PrepackagedBankruptcy31.6SummaryandConclusionsMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-231.1WhatisFinancialDistress?•Asituationwhereafirm’soperatingcashflowsarenotsufficienttosatisfycurrentobligationsandthefirmisforcedtotakecorrectiveaction.•Financialdistressmayleadafirmtodefaultonacontract,anditmayinvolvefinancialrestructuringbetweenthefirm,itscreditors,anditsequityinvestors.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-3Insolvency•Stock-baseinsolvency;thevalueofthefirm’sassetsislessthanthevalueofthedebt.AssetsDebtEquitySolventfirmDebtAssetsEquityInsolventfirmDebtNotethenegativeequityMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-4Insolvency•Flow-baseinsolvencyoccurswhenthefirmscashflowsareinsufficienttocovercontractuallyrequiredpayments.ContractualobligationsInsolvency$FirmcashflowCashflowshortfalltimeMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-5TheLargestU.S.BankruptciesFirmLiabilities($m)BankruptcyDateTexaco$21,6031987ExecutiveLifeInsurance14,5771991MutualBenefitLife13,5001991Campeau9,9471990FirstCapitalHoldings9,2911991BaldwinUnited9,0001983ContinentalAirlines(II)6,2001990LomasFinancial6,1271989Macy’s5,3001992McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-631.2WhatHappensinFinancialDistress?•Financialdistressdoesnotusuallyresultinthefirm’sdeath.•Firmsdealwithdistressby–Sellingmajorassets.–Mergingwithanotherfirm.–Reducingcapitalspendingandresearchanddevelopment.–Issuingnewsecurities.–Negotiatingwithbanksandothercreditors.–Exchangingdebtforequity.–Filingforbankruptcy.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-7ReorganizeandemergeMergewithanotherfirmLiquidation83%10%7%WhatHappensinFinancialDistressFinancialdistressFinancialrestructuringNofinancialrestructuring49%51%LegalbankruptcyChapter11Privateworkout47%53%Source:KarenH.Wruck,“FinancialDistress:ReorganizationandOrganizationalEfficiency,”JournalofFinancialEconomics27(1990),Figure2.SeealsoStuartC.Gilson;KoseJohn,andLarryN.P.Lang,“TroubledDebtRestructurings:AnEmpiricalStudyofPrivateReorganizationinFirmsinDefaults,”JournalofFinancialEconomics27(1990);andLawrenceA.Weiss,“BankruptcyResolution:DirectCostsandViolationofPriorityClaims,”JournalofFinancialEconomics27(1990).McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-8ResponsestoFinancialDistress•Thinkofthetwosidesofthebalancesheet.•AssetRestructuring:–Sellingmajorassets.–Mergingwithanotherfirm.–ReducingcapitalspendingandR&Dspending.•FinancialRestructuring:–Issuingnewsecurities.–Negotiatingwithbanksandothercreditors.–Exchangingdebtforequity.–Filingforbankruptcy.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-931.3BankruptcyLiquidationandReorganization•Firmsthatcannotmeettheirobligationshavetwochoices:liquidationorreorganization.•Liquidation(Chapter7)meansterminationofthefirmasagoingconcern.–Itinvolvessellingtheassetsofthefirmforsalvagevalue.–Theproceeds,netoftransactionscosts,aredistributedtocreditorsinorderofpriority.•Reorganization(Chapter11)istheoptionofkeepingthefirmagoingconcern.–Reorganizationsometimesinvolvesissuingnewsecuritiestoreplaceoldones.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-10BankruptcyLiquidationStraightliquidationunderChapter7usuallyinvolves:1.Apetitionisfiledinafederalcourt.Thedebtorfirmcouldfileavoluntarypetitionorthecreditorscouldfileaninvoluntarypetitionagainstthefirm.2.Atrustee-in-bankruptcyiselectedbythecreditorstotakeovertheassetsofthedebtorfirm.Thetrusteewillattempttoliquidatethefirm’sassets.3.Aftertheassetsaresold,afterpaymentofthecostsofadministration,moneyisdistributedtothecreditors.4.Ifanymoneyisleftover,theshareholdersgetit.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.31-11BankruptcyLiquidation:PriorityofClaimsThedistributionoftheproceedsofliquidationoccursaccordingtothefollowingpriority:1.Administrationexpensesassociatedwithliquidation.2.Unsecuredclaimsarisingafterthefilingofaninvoluntarybankruptcypetition.3.Wagesearnedwithin90daysbeforethefilingdate,nottoexceed$2,000perclaimant.4.Contributionstoemployeebenefitplansarisingwith180daysbeforethefilingdate.5.Consumerclaims,notexceeding$900.