Ch15 Flashcards
(24 cards)
financial distress
cash flow insufficient to meet current debt obligations
insolvent
- negative equity (balance sheet)
- cash flows insufficient (cash flow perspective)
loan default
failure to make payments when due
acceleration provision
once you default, prinicpal and interest now due at once
cross-default provision
defaulting on one makes all of them in default
foreclosure
legal process by creditors to try to collect loans in default
options to resolve financial distress
- operations restructure
- financial restructure
- asset restructure
operations restructure
improve profit margin
asset restructure
- improve working capital
- or sell fixed assets
financial restructure
`-change contractual terms of existing debt or
-change composition of debt claims
debt payment extension
postpone due dates for payments
debt composition change
creditors reduce contractual claims against venture
private workouts
voluntary agreement between firm and creditor for financial restructuring
assignment
transfer of title of assets to trusted third party
ch 11 bankrupcy
protection from creditors while venture reorganizes
ch 7 bankrupcy
specifies actions to take to liquidate
bankrupt
occurs when petition filed to federal bankrupcy court.
can be voluntary/involuntary(started by creditors)
common pool problem
crediors have incentive to foreclose rather than have it live on with going concern
automatic stay provision
restricts creditors ability to foreclose/seize assets
voting by class
bankrupcy must get 50% vote and 2/3 of value in class
holdout problem
when creditors refuse to agree to reorganization bc of chance of higher return
cram down procedure
bankrupcy court accepts reorganization plan for creditors even when some dont like it
debtor-in-possesion financing
short-term financing made senior to all other debt to meet liquidity needs during reorganization
prepackaged bankrupcy
initial attempt to convince majority of creditors to go along with voluntary ch 11
