Bonkers thought: IF Corona is a short term problem (call it a year), is there any reason companies shouldn't declare BK if they run into grumpy creditors, to kick the can? If results/the market improve by the end of the process, interesting cases might be made about valuation?
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Replying to @LAForeverHall
You thinking declare BK, wipe out the creditors and pensions, and emerge as low cost producers?
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Replying to @PythiaR @LAForeverHall
It’s called a solvent debtor in the US The debtor holds exclusivity on proposing a plan and can often create an opportunity to cram down existing creditors into worse securities Judges don’t look too kindly on situations that could have been resolved out of court but file
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Sure that's kinda what I was getting at though? Could a case be made you weren't necessarily solvent at the time, or didn't think so, but are now? GGP kinda worked out like this if I recall? Company had plenty of equity value but couldn't refinance debt.
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Replying to @LAForeverHall @PythiaR
There’s a difference between solvency & liquidity Courts (Delaware or BK) put a lot of weight into DCF analysis Let’s say you’re a restaurant chain - you’re worth $1b, have $500m of debt run out of cash Bc of CV and lenders won’t provide liquidity, so you file to get a DIP
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3 months later doors are open, slinging burgers, and maybe your TEV is now $800m (higher DR given change of perceived risk) There’s material eq value The BK judge is PISSED. You’ve racked up tens of millions of advisory/lawyer fees, all because the lenders wouldn’t help
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Ah that makes a ton of sense. I think I misread you before, thinking you meant the judge would be pissed at equity? Or am I still misreading you? If no, that seems to indicate there could be some real interesting situations coming up b/c there's a sort of leverage/threat there?
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Replying to @LAForeverHall @PythiaR
Judge would be pissed at creditors The goal of restructurings is to keep things out of court
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So there's a certain leverage there for the co (and equity), yeah? Seems like a lot of names are really getting beat to shit not only because of CV but also potential credit issues. If the economic ice age is temporary, those might be golden buys?
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Wonderful. Thanks for sharing your insight; that's kinda what I was thinking, but as I have no experience here, it was hard for me to tell if I was bonkers. Your posts were very helpful to me.
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