Restructuring

It means the company is struggling to meet its financial obligations: it may be close to breaching a covenant, unable to refinance an approaching maturity, or generating too little cash to service its interest. Distress is about the balance sheet rather than the business, and plenty of distressed companies have perfectly good operations carrying too much debt.

• Difficulty meeting financial obligations as they come due
• Signals: covenant breach, maturity wall, weak interest coverage
• Debt trading well below par is a market signal of distress
• Often a balance sheet problem rather than a business problem
• Distinct from insolvency, which is a formal legal condition

Whether you separate a debt problem from a business problem. It is the framing the whole industry rests on.

Because a single creditor has no leverage and cannot justify the cost of advisers. Grouping together gets them past a blocking threshold, so nothing can be amended or approved without them. It lets them share legal and financial adviser costs, which the company usually ends up paying as a condition of engaging. And it stops the company picking creditors off one at a time.

• Individually a creditor cannot block anything or afford advisers
• A group can hold a blocking position on amendments or on a plan
• Shared adviser costs, in practice usually funded by the company
• Prevents the company negotiating with creditors one by one
• Members often sign a co-operation agreement to stop each other defecting

Whether you mention the blocking position. Leverage in a restructuring comes from being able to say no credibly.

You start with a thirteen week cash flow, so everyone knows how long the company has, then map the capital structure and who actually holds the debt. From there you model restructuring alternatives, value the business to work out where the fulcrum sits, and negotiate with creditor groups and their advisers. You may also run a sale process or raise DIP and exit financing. A lot of the job is managing counterparties who distrust each other.

• Thirteen week cash flow to establish the liquidity runway
• Map the capital structure and identify who holds the debt today
• Model alternatives and value the business to locate the fulcrum
• Negotiate with creditor groups, frequently several at once
• Run parallel processes: a sale, DIP financing or exit financing

Whether you mention the thirteen week cash flow. It is the first thing built on nearly every mandate and signals you have spoken to someone in the group.

It is the debt raised to fund a company on emergence from Chapter 11: it repays the DIP facility, funds plan distributions and provides working capital. Lenders will do it because the company coming out is a different credit from the one that went in. Debt has been written down, onerous contracts and leases rejected, and the plan delivers a clean, court blessed capital structure with a known balance sheet.

• Debt raised to fund the company on emergence from Chapter 11
• Repays the DIP, funds plan distributions and provides liquidity
• The emerging company is far less levered than the one that filed
• Onerous contracts and leases have been rejected under the plan
• Committed exit financing is usually a condition of confirmation

Whether you see that the credit itself has changed. Candidates find it counterintuitive that anyone lends to a company just out of bankruptcy.

Restructuring is the process of fixing a capital structure the business can no longer support. It usually happens when leverage taken on in better conditions collides with deteriorating cash flow, so the company cannot service its debt. It can be done out of court through negotiated exchanges and amendments, or in court through Chapter 11. Bankers advise either the company or a creditor group.

• A capital structure the current cash flow cannot support
• Trigger is usually a maturity wall or a covenant breach
• Out of court: exchanges, amendments, maturity extensions
• In court: Chapter 11, with the automatic stay and cram-down available
• Advisors work either company side or creditor side

Whether you frame it as a balance sheet problem rather than a business problem. Often the business is fine and only the leverage is wrong.

Extend maturities so the wall moves out and the company has time to recover. Exchange debt for new debt at a lower principal, usually at a discount to par. Exchange debt for equity, which deleverages but dilutes existing shareholders heavily. Raise new equity or take rescue financing. Or sell assets and use the proceeds to pay down debt. Out of court is faster and cheaper than filing, but it needs near-unanimous creditor consent.

• Amend and extend to push out maturities
• Debt for debt exchange at a discount to par
• Debt for equity swap, deleveraging but heavily dilutive
• New equity, rescue financing, or asset sales
• Faster and cheaper than Chapter 11, but needs near-unanimous consent

Whether you name the consent problem, which is exactly why companies end up filing despite preferring not to.

A liquidation analysis estimates what each class would recover if the company were wound up under Chapter 7 instead of reorganized: assets marked at forced sale values, trustee fees and wind down costs deducted, then distributed by priority. The best interests test requires that every dissenting creditor receive at least that much under the plan. It sets the floor for recoveries, which is why the analysis appears in every disclosure statement.

• Estimates class by class recoveries in a hypothetical Chapter 7 liquidation
• Assets marked at forced sale values, not going concern values
• Deducts trustee fees, professional costs and wind down expenses
• Best interests test: each dissenting creditor must receive at least that amount
• Sets the recovery floor and appears in every disclosure statement

Whether you frame it as a floor rather than a valuation. Going concern value is almost always higher, which is the argument for reorganizing at all.

It is a court approved sale of assets inside a Chapter 11 case, named after the section of the code that permits it. The attraction is that the buyer takes the assets free and clear of liens and most claims, which attach to the sale proceeds instead. So the buyer gets clean title with far less successor liability risk than in an ordinary acquisition, and the court order is very hard to unwind afterwards.

• A court approved asset sale conducted inside a Chapter 11 case
• Assets transfer free and clear of liens and most claims
• Claims attach to the sale proceeds rather than to the assets
• Much lower successor liability risk than an out of court asset purchase
• Usually run as an auction with a stalking horse bid setting the floor

Whether you explain free and clear. That is the entire reason a buyer will pay more for an asset inside bankruptcy than outside it.