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Chapter 31

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					          Chapter 31

Are the executive summary and Table
          31.1. sill correct?
          Financial Distress

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               Chapter 31
• 31.1. What is Financial Distress?
• 31.2. What Happens in Financial Distress?
• 31.3. Bankruptcy Liquidation and
  Reorganization
• 31.4. Private Workout of Bankruptcy:
  Which is Best?


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       Chapter 31 continued
• 31.5. Prepackaged Bankruptcy
• 31.6. Summary and Conclusions
• Appendix 31A: Predicting Corporate
  Bankruptcy: The Z-Score Model




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31.1. What is Financial Distress?
• What are 6 examples of financial distress?
  – These are all a sign of what problem involving
    cash?
• What is insolvency?
  – What is stock-based insolvency?
  – What is flow-based insolvency?



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31.2. What Happens in Financial
           Distress?
• Does financial distress usually result in the
  disappearance of the firm?
  – What percentage survive?
• What are 3 ways to address insolvency
  through the asset side of the balance sheet?
• What are 4 ways to address insolvency
  through the liability side of the balance
  sheet?
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31.3. Bankruptcy Liquidation and
         Reorganization
• What percentage of firms are liquidated
  during bankruptcy?
• Who can file for bankruptcy?
• 31.3.A. Bankruptcy Liquidation
• 31.3.B. Bankruptcy Reorganization



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 31.3.A. Bankruptcy Liquidation
• This is generally called a what?
• What are the steps involved?
• How many creditors does it take to force an
  involuntary bankruptcy?
• What is the order for paying out the
  proceeds of liquidation?
  – What is this called?
• What is a ‘vulture’?
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           31.3.B. Bankruptcy
             Reorganization
• What is this usually called?
• What are the steps involved?
   – Who usually gets paid off completely?
   – Who generally has a hard time getting paid
     completely?
   – How do equityholders manage to get some payments
     before unsecured creditors are completely paid?
   – How often to equityholders get nothing?
• What is cramming down?
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    31.4. Private Workout of
   Bankruptcy: Which is Best?
• Which is more common, a private workout
  or a formal bankruptcy?
• What are 2 reasons that shareholders may
  prefer a private workout?
• 31.4.A. The Marginal Firm
• 31.4.B. Holdouts
• 31.4.C. Complexity
• 31.4.D. Lack of Information
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    31.4.A. The Marginal Firm
• What can such a firm do in bankruptcy that
  it can’t do otherwise?
• What are 2 other advantages of formal
  bankruptcy for this type of firm?




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          31.4.B. Holdouts
• How can equityholders hold creditors
  ‘hostage’ in Chapter 11?




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         31.4.C. Complexity
• When would a private workout be more
  feasible – with many or a few creditors?




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   31.4.D. Lack of Information
• Which do you think people want, a formal
  or informal bankruptcy for Enron?




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  31.5. Prepackaged Bankruptcy
• What is this?
• Who is likely to use this?
• Case Study: The Decision to File for
  Bankruptcy: The Case of Revco




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Case Study: The Decision to File
  for Bankruptcy: The Case of
            Revco




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31.6. Summary and Conclusions




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 Appendix 31A: Predicting
Corporate Bankruptcy: The Z-
        Score Model




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