公司理財(cái)原版英文課件Chap030概要1

1、Financial DistressChapter 30Copyright 2021 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinKey Concepts and SkillsBe able to define financial distress and understand what happens to a firm in distressUnderstand the difference between liquidation and reorganizationUnderstand t

2、he absolute priority ruleUnderstand the potential benefits of a private workout versus formal bankruptcyUnderstand the Z-Score Model for predicting bankruptcyChapter Outline30.1 What Is Financial Distress?30.2 What Happens in Financial Distress?30.3 Bankruptcy Liquidation and Reorganization30.4 Priv

3、ate Workout or Bankruptcy: Which is Best?30.5 Prepackaged Bankruptcy30.6 Predicting Corporate Bankruptcy: The Z-Score Model30.1 What Is Financial Distress?Financial distress is a situation where a firms operating cash flows are not sufficient to satisfy current obligations, and the firm is forced to

4、 take corrective action.Financial distress may lead a firm to default on a contract, and it may involve financial restructuring between the firm, its creditors, and its equity investors.InsolvencyStock-base insolvency: the value of the firms assets is less than the value of the debt.AssetsDebtEquity

5、Solvent firmDebtAssetsEquityInsolvent firmDebtNote the negative equityInsolvencyFlow-base insolvency occurs when the firms cash flows are insufficient to cover contractually required payments.Contractual obligationsInsolvency$Firm cash flowCash flow shortfalltimeLargest U.S. BankruptciesFirmLiabilit

6、ies (in $ millions)DateLehman Bro.613,000.00 September 2008Conseco Inc.$56,639.30 December 2002Worldcom Inc.45,984.00 July 2002Refco, Inc.33,300.00 October 2005Enron Corp.31,237.00 December 200130.2 What Happens in Financial Distress?Financial distress does not usually result in the firms death.Firm

7、s deal with distress by:Selling major assets.Merging with another firm.Reducing capital spending and research and development.Issuing new securities.Negotiating with banks and other creditors.Exchanging debt for equity.Filing for bankruptcy.Reorganize and emergeMerge withanother firmLiquidation83%10

8、%7%What Happens in Financial Distress?FinancialdistressFinancialrestructuringNo financialrestructuring49%51%Legal bankruptcyChapter 11Privateworkout47%53%Source: Karen H. Wruck, “Financial Distress: Reorganization and Organizational Efficiency, Journal of Financial Economics27 (1990), Figure 2. See

9、also Stuart C. Gilson; Kose John, and Larry N.P. Lang, “Troubled Debt Restructurings: An EmpiricalStudy of Private Reorganization in Firms in Defaults, Journal of Financial Economics 27 (1990); and Lawrence A. Weiss,“Bankruptcy Resolution: Direct Costs and Violation of Priority Claims, Journal of Fi

10、nancial Economics 27 (1990).Responses to Financial DistressThink of the two sides of the balance sheet.Asset Restructuring:Selling major assetsMerging with another firmReducing capital spending and R&D spendingFinancial Restructuring:Issuing new securitiesNegotiating with banks and other creditorsEx

11、changing debt for equityFiling for bankruptcy30.3 Bankruptcy Liquidation and ReorganizationFirms that cannot meet their obligations have two choices: liquidation or reorganization.Liquidation (Chapter 7) means termination of the firm as a going concern.It involves selling the assets of the firm for

12、salvage value.The proceeds, net of transactions costs, are distributed to creditors in order of priority.Reorganization (Chapter 11) is the option of keeping the firm a going concern.Reorganization sometimes involves issuing new securities to replace old ones.Bankruptcy LiquidationStraight liquidati

13、on under Chapter 7:A petition is filed in a federal court. The debtor firm could file a voluntary petition or the creditors could file an involuntary petition against the firm.A trustee-in-bankruptcy is elected by the creditors to take over the assets of the debtor firm. The trustee will attempt to

14、liquidate the firms assets.After the assets are sold, after payment of the costs of administration, money is distributed to the creditors.If any money is left over, the shareholders get it.Bankruptcy Liquidation: Priority of ClaimsLiquidation proceeds are distributed in order of priority:Administrat

15、ion expenses associated with liquidationUnsecured claims arising after the filing of an involuntary bankruptcy petitionWages earned within 90 days before the filing date, not to exceed $2,000 per claimantContributions to employee benefit plans arising with 180 days before the filing dateConsumer cla

16、ims, not exceeding $900Tax claimsSecured and unsecured creditors claimsPreferred stockholders claimsCommon stockholders claimsAbsolute Priority Rule in PracticeThe APR states that senior claims are fully satisfied before junior claims receive anything.Deviations from APREquityholdersExpectation: No

17、payoutReality: Payout in 81% of casesUnsecured creditorsExpectation: Full payout after secured creditorsReality: Violation in 78% of casesSecured creditorsExpectation: Full payoutReality: Full payout in 92% of casesReasons for Absolute Priority Rule ViolationsCreditors want to avoid the expense of l

18、itigation. Debtors are given a 120-day window of opportunity to cause delay and harm value.Managers often own equity and demand to be compensated. They are in charge for at least the next 120 days.Bankruptcy judges like consensual plans (they do not clog the court calendar with appeals) and pressure

19、 parties to compromise.Bankruptcy Reorganization: Chapter 11A typical sequence:A voluntary petition or an involuntary petition is filed.A federal judge either approves or denies the petition.In most cases the debtor continues to run the business.The firm is given 120 days to submit a reorganization

20、plan.Creditors and shareholders are divided into classes. Requires only approval by 1/2 of creditors owning 2/3 of outstanding debt. After acceptance by the creditors, the plan is confirmed by the court.Payments in cash, property, and securities are made to creditors and shareholders. 30.4 Private W

21、orkout or Bankruptcy: Which Is Best?Both formal bankruptcy and private workouts involve exchanging new financial claims for old financial claims.Usually, senior debt is replaced with junior debt, and debt is replaced with equity.When they work, private workouts are better than a formal bankruptcy.Co

22、mplex capital structures and lack of information make private workouts less likely.Private Workout or Bankruptcy: Which Is Best?Advantages of BankruptcyNew credit is available - debtor in possession debtDiscontinued accrual of interest on pre-bankruptcy unsecured debtAn automatic stay provisionTax a

23、dvantagesRequires only approval by 1/2 of creditors owning 2/3 of outstanding debtDisadvantages of BankruptcyA long and expensive processJudges are required to approve major business decisionsDistraction to management“Hold out by stockholders30.5 Prepackaged BankruptcyPrepackaged Bankruptcy is a com

24、bination of a private workout and legal bankruptcy. The firm and most of its creditors agree to private reorganization outside the formal bankruptcy.After the private reorganization is put together (prepackaged) the firm files a formal bankruptcy (under Chapter 11).The main benefit is that it forces holdouts to accept a bankruptcy reorganization.Offers many of the advantages of a formal bankruptcy, but is more efficient. The Z-Score Model: Public, Manu