bankruptcy 2009
The role of evaluation in bankruptcy
Bankruptcy filings are on the rise dramatically! With a meltdown in the financial markets and the resulting Destruction of wealth and employment, the number of companies rose filed for Chapter 11 bankruptcy protection in 2008 and will continue to increase in 2009.
Bankruptcy filings among public companies, for example, grew by 74% in 2008, according to BankruptcyData.com. There were 136 bankruptcy filings of publicly traded companies in 2008, compared with 78 in 2007, according to the data. And although the results in 2008 were still below the record 263 bankruptcies In 2001, that the most likely to change in 2009.
While the year on year growth was made bankrupt quickly the value of the company grew, Shelter, by an even higher rate. Of the 136 companies that provides protection in 2008, their collective assets were approximately $ 1.16 trillion, compared to only 70.5 Billion dollars in assets for companies filing for bankruptcy in 2007.
Many of these companies will seek to reorganize and appear as a new "going concern with restructuring operations and deleveraged balance sheet. To get there, but they will have access to capital during the bankruptcy proceedings need to change / redevelopment process, and that usually means a fight with other creditors on the use of cash or the emergence of new debt.
To bridge the discord that is an "adequate protection" Hearing often performed to determine whether there is sufficient equity in the company exists with the use of payment or incurring new debt would be inconsistent, the existing secured creditors.
To resolve this problem resolve to an assessment of the bankruptcy estate and / or property is used to determine whether the prepetition lenders' are adequately protected. " In Feedback analysis is also in the process to other important issues, including new start for accounting purposes is usually used in connection with the search after confirmation of a plan of reorganization in anticipation of the emergence from bankruptcy. In all, evaluation of the company or its assets plays an important role in the insolvency / rehabilitation process.
Valuation to adequately protect
§ 363 (a) of the Bankruptcy Code defines cash as cash collateral. " Often, a secured creditor has a security interest in such cash collateral. According § 363 (c) (2), the debtor is prohibited from spending cash collateral without the consent of all parties who have an interest in the security or an injunction.
If no agreement regarding the use of cash collateral is reached a lender is willing, the bankruptcy court that it is not adequately protected to demonstrate. While technically the defendant the burden of proof that the lender is adequately protected, the creditor must be fully prepared to show that the debtor has the offer of protection is inadequate, and here is the question of evaluation is crucial, but the burden is to show that for each issue one U.S. dollars of collateral, a dollar or more value created.
Similarly, under Bankruptcy Code § 364 (d), after notice and hearing, the court may authorize a debtor to credit or debt incurred by a senior or equal lien on property liens that secure, that is already a lien if the debtor shows two things: (i), the obligor is not in a position of such credit otherwise, and (ii) the interests of current owners lien be "adequately protected" should be granted to proposed higher or equal lien.
A debtor Ability to post-petition debtor-in secure possession (DIP) financing under Bankruptcy Code § 364 (d) of the Bankruptcy Code (ie, hangs a "priming lien") of the second requirement of Bankruptcy Code § 364 (d). It is about determining whether a creditor is adequately protected if the interest of the creditor whose lien autonomy needed to be primed is placed incorrectly into question. In general, the most difficult requirements in connection with obtaining DIP financing the establishment of adequate is Protection, (d) under Bankruptcy Code § 364 (2) the burden of the debtor. Adequate protection can be demonstrated one of three ways: (i) if the debtor the DIP financing for the repayment of the pre-petition lender's outstanding debt, (ii) if the defendant agrees to monthly payments to the lender To make, or (iii) if the court finds that the lender of the existence of sufficient "equity cushion is protected." Of these, the most common Method to establish the existence of a sufficient "equity cushion."
In re Hubbard Power & Light, 202 BR 680, 685 (Bankr. EDNY 1996), "The goal of adequate protection for the purposes of determining entitle the debtor to finance by liens priority over all other interests guaranteed to receive is to reduce the secured creditors the value of protecting their interests. "To achieve this, the evaluation of the estate and / or property shall be crucial for determining whether the pre-petition creditors are adequately protected. The judge hearing the motion will be required to submit the evaluation of the evidence to decide whether a sufficient capital cushion is found to exist, and whether use of cash collateral or DIP financing grant.
Other equipment for evaluating insolvency
In addition to the solution of problems in the early bankruptcy / reorganization, valuation analysis at various other authorities is necessary. Specifically, the implementation and continuation of the evaluations are necessary for various reasons under § 1126 of the Bankruptcy Code. Furthermore all divisions or assets that must be sold to be respected and a new beginning for accounting purposes in order to practice before the bankruptcy, an assessment of the collateral is not required. Regarding this last point, new accounting standards, including Statement of Financial
Accounting Standard ( "SFAS") 141R (Business Combinations (revised)) and SFAS 157 (Fair Value Measurements) will change as the value of distressed Companies identified and reported. This is particularly relevant in bankruptcy, because the values in accordance with the AICPA's SOP 90-7 are the same that appear in the disclosure statement Plan of reorganization and are presented as evidence to support or defend against the various movements that determine ultimately claim holder recovery.
More particular, SFAS 141R specifies what assets and liabilities must be identified and evaluated, while SFAS 157 of the pipe, with which this Values are estimates makes available. Accordingly, evaluation or analysis of collateral, the company will have more importance in the process because of the new standards, more objective evidence in determining reorganization value, requires the identification of previously unrecognized or undervalued intangible assets and the application of the revised Fair value standard, which under SFAS 157th
With more emphasis on the assessment, which will result from this new scheme from the new opportunities for businesses emerge and informs its claim holders to identify undervalued or overvalued assets that will improve the prospects for the recovery of some components while reducing the other. In the final analysis, the valuation in bankruptcy or reorganization is a prominent topic in the coming years.
Expertise Rating
With the introduction of FAS 157 and FAS 141R, it has created a critical need for independent evaluations of the firm value withstand the test during the bankruptcy process. And be imposed as new statements, and existing standards are revised, the navigation in reporting landscape becomes increasingly difficult. Valcor Consulting is uniquely qualified to help companies need to review, by providing comprehensive solutions, which are based on extensive experience and reputation for integrity and independence.
About the Author
During challenging times, it becomes ever more important to seek the advice of an experienced team that can provide insightful and practical advice while building consensus among competing interests to ensure acceptance of the restructuring plan. That’s why businesses turn to VALCOR. We are uniquely qualified to assist clients with their financial restructuring needs by providing comprehensive solutions based on experience and a reputation for integrity and independence.
Ray Clark is the Senior Managing Director of VALCOR Consulting, LLC, an independent financial advisory that provides restructuring, transactional and valuation services to middle-market companies. VALCOR has offices in Orange County, CA, San Francisco, CA and Phoenix, AZ. He can be contacted at (949) 644-8022 or by email at Rclark@valcoronline.com.
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