Lecture-11-Bankruptcy+Liquidation+and+Reorganization

Exchangingdebtforequity filingforbankruptcy

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Unformatted text preview: ing capital spending and R&D spending. Financial Restructuring: Issuing new securities. Negotiating with banks and other creditors. Exchanging debt for equity. Filing for bankruptcy. Private "workout" is a non­bankruptcy negotiated modification of debt. It is an out­of­court agreement between a debtor and his or her creditors for repayment of the debts between them, which is negotiated without all the procedural complications — and perhaps the stigma — of the bankruptcy process. 8 What are the major causes of business failure? Economic factors industry weakness­Five forces of industry competition are useful for identifying possible industry level causes of financial distress. These forces are 1) entry / exit barriers, 2) bargaining power of vendors 3) bargaining power of buyer 4) threat of substitute products and 5) rivalry among competing firms. poor location/product Financial factors­too much debt insufficient capital Macro­level causes­recession Most failures occur because a number of factors combine to make the business unsustainable. 9 Do business failures occur evenly over time? A large number of businesses fail each year, but the number in any one year has never been a large percentage of the total business population. The failure rate of businesses has tended to fluctuate with the state of the economy. 10 What size firm, large or small, is more prone to business failure? Bankruptcy is more frequent among smaller firms. Large firms tend to get more help from external sources to avoid bankruptcy, given their greater impact on the economy. 11 What key issues must managers face in the financial distress process? Is it a temporary problem (technical insolvency an entity cannot raise enough cash to meet its obligations, or to pay debts as they become due for payment) or a permanent problem caused by asset values below debt obligations (insolvency in bankruptcy)? Who should bear the losses? Would the firm be more valuable if it continued to operate or if it...
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This note was uploaded on 02/11/2014 for the course MANA 2028 taught by Professor Sisterennis during the Winter '12 term at Marquette.

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