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| Notes on Style | |
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| Acknowledgments | |
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| About the Author | |
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| Web Added Value | |
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| Introduction | |
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| An Example of a Distressed Debt Situation | |
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| What Is Distressed Debt? | |
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| Investing in Distressed Debt | |
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| The Distressed Debt Investment Opportunity | |
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| Financial Restructurings in the 2000-2003 Era | |
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| Precursors to Default | |
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| Economic Performance | |
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| Relative Quantity of Low-Rated Bonds | |
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| Capital Markets Liquidity | |
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| Market Conditions That Permit Superior Returns | |
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| Equal Access to Information | |
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| Rational Behavior | |
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| Low Transaction Costs | |
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| Summary | |
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| Conceptual Overview of Financial Distress and the Restructuring Process | |
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| A Simple Model of the Firm | |
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| Extensions of the Basic Model | |
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| A Conceptual View of Financial Distress | |
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| How Restructurings Attempt to "Fix" the Distress | |
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| Summary | |
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| Legal Overview of Distressed Debt Restructurings | |
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| Out-of-Court Restructurings: The Preferred Option When Effective and Feasible | |
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| The Financial Effects of an Out-of-Court Restructuring | |
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| The Out-of-Court Restructuring Process | |
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| Parties Involved | |
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| Strategic Considerations in Participating on the Bondholder Committee | |
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| Beginning the Process | |
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| Implementing the Restructuring | |
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| Feasibility: The Holdout Problem | |
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| Summary | |
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| In-Court Restructurings: An Overview of the Bankruptcy Process | |
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| Declaring Bankruptcy | |
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| Jurisdiction of Filing | |
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| Timing of Filing | |
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| The Goal: The Plan of Reorganization | |
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| The Role of Exclusivity and Prefiling Coordination | |
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| Content and Structure of the Plan | |
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| Operating Under Chapter 11 | |
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| Stabilizing Operations | |
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| Developing a Going-Forward Business Plan | |
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| Determining the Assets and Liabilities | |
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| Determining the Valuation and the New Capital Structure | |
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| Voting on and Confirming a Plan of Reorganization | |
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| Summary | |
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| Overview of the Valuation Process | |
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| The Basics of Cash-Flow-Based Valuation | |
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| Using EBITDA as a Measure of Cash Flow | |
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| Understanding and Adjusting EBITDA | |
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| Limitations of EBITDA | |
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| Comparing Discounted Cash Flow and EBITDA Multiple Approaches | |
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| Comparable Company Analysis Based on Enterprise Value | |
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| Calculating Enterprise Value | |
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| Determining the Correct Multiple | |
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| Using Comparable Company Analysis | |
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| Alternatives to the EBITDA Multiple Approach | |
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| Revenue-Based Valuations | |
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| Asset-Based Valuations | |
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| Customer-Based Valuations | |
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| Liquidation Valuations | |
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| Summary | |
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| Leverage and the Concepts of Credit Support and Capacity | |
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| The Interrelationship of Credit Risk and Credit Support | |
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| Credit Risk | |
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| Credit Support | |
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| Credit Capacity | |
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| Credit Capacity as Measured by Debt Repayment Ability | |
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| Stable Cash Flow Scenarios | |
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| Volatile Cash Flow Scenarios | |
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| Debt Capacity Under Alternative Criteria | |
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| Asset Coverage | |
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| Ability to Refinance | |
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| Interest Expense Coverage | |
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| Capital Instruments Designed to "Avoid" Credit Capacity Criteria | |
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| Exchangeable Preferred Stock | |
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| Convertible Bonds | |
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| Discount Notes and Payment-in-Kind Notes | |
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| Summary | |
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| Capital Structures and the Allocation and Management of Credit Risk | |
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| Using Corporate and Capital Structures to Allocate Credit Risk | |
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| Grants of Collateral | |
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| Contractual Provisions | |
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| Maturity Structure | |
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| Corporate Structure | |
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| How Capital Structures Manage Credit Risk | |
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| Leverage | |
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| Priority | |
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| Restricted Payments | |
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| Negative Pledge Clauses | |
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| Time | |
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| Performance Covenants | |
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| Put Rights | |
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| Forced Call in the Event of a Downgrade | |
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| Performance-Linked Pricing Provisions | |
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| Summary | |
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| Causes of Financial Distress and the Restructuring Implications | |
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| Indicators of Financial Distress | |
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| Debt Ratings | |
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| Predictive Models | |
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| Market Prices | |
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| Causes of Financial Distress | |
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| Performance Materially Below Expectation | |
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| Economic Downturn | |
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| Uncompetitive Product or Service | |
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| Unrealistic Business Plan | |
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| Poor Management | |
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| Near-Term Liquidity Issues | |
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| Bank Debt Scenarios | |
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| No Bank Debt Scenarios | |
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| Unexpected Liabilities | |
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| Tort Claims | |
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| Contract Liabilities | |
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| Crisis of Confidence: Fraud and Other Events That Create Financial Uncertainty | |
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| Reliability of Historical Financial Data and Valuation Issues | |
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| Liquidity and the Likelihood of Bankruptcy | |
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| Summary | |
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| Options for Alleviating Financial Distress: The Company's Perspective | |
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| Properly Assessing the Distressed Firm's Likely Actions Is Key to Assessing the Investment Outcomes | |
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| Playing the Waiting Game | |
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| Between a Rock and a Hard Place | |
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| Summary | |
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| Strategic Options to Resolve Financial Distress Outside Bankruptcy | |
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| Raise Additional Capital | |
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| Asset Sales | |
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| Secured Financings | |
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| Sale/Leaseback Financings | |
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| Equity Sponsors | |
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| Reducing Leverage | |
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| Open Market Repurchases | |
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| Direct Purchases from Holders | |
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| Cash Tender Offers | |
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| Exchange Offers | |
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| Coercive Exchange Offers | |
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| Noncoercive Exchange Offers | |
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| Constraints on the Range of Options | |
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| Liquidity | |
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| Time-to-Liquidity Event | |
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| Magnitude of Problem | |
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| Complexity of Capital Structure | |
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| Severability of Business Units | |
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| Cause(s) of Financial Distress | |
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| Strategies When Bankruptcy Appears Necessary | |
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| Maintaining Liquidity | |
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| Preplanned Filings | |
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| Summary | |
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| Profiting from Financial Distress: The Investor's Perspective | |
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| Defining the Investment Objectives | |
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| Tailoring a Strategy to the Investment Objectives | |
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| Non-Chapter 11 Situations | |
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| Passive Involvement | |
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| Active Involvement | |
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| Chapter 11 Situations | |
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| Feasibility Considerations | |
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| Capital Structure | |
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| Market Versus True Valuation | |
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| Market Liquidity/Concentration of Holdings | |
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| Other Distressed Investors | |
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| Bank Debt | |
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| Large Block Holders of Public Debt | |
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| Hedging and Capital Structure Arbitrage | |
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| Return Potential of Capital Structure Arbitrage | |
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| Common Capital Structure Arbitrage Trades | |
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| Pari Passu Securities with Different Maturities | |
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| Senior Versus Junior Securities | |
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| Bonds Versus Equity | |
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| Summary | |
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| Practical Aspects of the Investment Process and Due Diligence | |
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| Practical Realities of the Investment Analysis Process | |
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| Screening Situations to Prioritize Opportunities | |
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| Reacting to Volatile Situations | |
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| A Time-Efficient Valuation Methodology | |
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| Performing Due Diligence | |
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| Diligence Cost-Benefit Analysis | |
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| Prioritizing the Diligence Issues | |
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| Financial Due Diligence | |
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| Basic Goals of Financial Due Diligence | |
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| Obtaining Publicly Available Financial Information | |
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| Accessing Management | |
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| Special Valuation Considerations in Financially Distressed Contexts | |
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| Business Deterioration During a Reorganization | |
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| Reorganization Costs | |
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| Critical Vendor Payments | |
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| Cash Accumulation During the Reorganization | |
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| Tax Issues | |
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| Liquidity Implications of a Distressed Firm's Current Tax Status | |
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| Potential Value from Carryforward of Net Operating Losses | |
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| Priority Status of Tax Claims | |
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| Legal Due Diligence | |
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| Obtaining the Relevant Documents | |
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| Checklist of Legal and Bankruptcy-Related Issues to Consider | |
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| Voidable Preferences | |
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| Substantive Consolidation | |
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| Structural Advantages | |
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| Equitable Subordination | |
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| Zone of Insolvency | |
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| Special Considerations When Investing in Claims That Are Not Negotiable Instruments | |
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| Recent Developments Under the Sarbanes-Oxley Act of 2002 | |
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| Mechanics of Accumulating the Investment | |
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| Investment Strategy and Market Environment Drive Accumulation Approach | |
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| Consummating the Trade | |
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| Firm Market | |
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| No Market or Above-Market Offering | |
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| Settling the Trade | |
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| Bank Debt | |
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| Holder Identity | |
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| Settlement | |
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| Special Considerations for Revolving Loans | |
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| Summary | |
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| Dynamics of the Workout Process: The Endgame | |
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| The Parties | |
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| The Debtor | |
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| Debtor's Bankruptcy Counsel | |
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| Debtor's Financial Advisor | |
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| The Committee | |
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| Committee Legal Counsel | |
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| Committee Financial Advisor | |
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| The Secured Creditors | |
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| The Bankruptcy Judge | |
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| Types of Chapter 11 Cases | |
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| Preplanned Restructuring | |
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| Full Prepack | |
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| Prenegotiated Filings | |
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| Asset Sales | |
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| Sales Intended to Enhance Recoveries by Maximizing Estate Value | |
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| Sales Designed to Maximize Creditor Recoveries | |
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| Free-Fall and Contested Chapter 11 Reorganizations | |
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| Sources of Leverage in the Chapter 11 Process | |
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| Delay | |
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| Management and the Right of Exclusivity | |
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| Creditors and the Threat of Litigation | |
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| Priority | |
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| Secured Creditors | |
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| Valuation | |
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| Voting and Confirmation | |
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| Voting | |
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| Confirmation | |
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| Summary | |
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| Postreorganization Considerations | |
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| Postreorganization Equities | |
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| Size of Expected or Probable Market Capitalization | |
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| Postreorganization Trading Float | |
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| Forced Sellers | |
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| Company Profile | |
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| Postconfirmation Lockups | |
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| Tax-Based Trading Restrictions | |
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| Warrants | |
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| Trading Performance of Back-End Equities | |
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| Postreorganization Debt Securities | |
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| Liquidating Trusts | |
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| Summary | |
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| Endotes | |
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| Literature Survey and Selected References | |
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| Chess Notation and Game Moves | |
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| Disclosure of Possible Conflicts of Interest | |
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| Index | |