...million in uncollateralized term loans (the “Original Debt”) outstanding with two lenders, Bank A ($129.6 million) and Bank B ($302.4 million). Note that these are not participating loans. Further, issuance costs associated with the Original Debt in the amount of $3 million remained unamortized as of December 31, 2010 ($900,000 and $2.1 million for the loans held by Bank A and Bank B, respectively). As a result of lower than expected travel during the holiday season, the Company projected a short-term cash flow shortage and would not be able to meet the short-term requirements of the Original Debt. In addition, the Company defaulted on a separate debt instrument with Bank C, which resulted in a cross default on the Original Debt held by Bank A and Bank B. On January 1, 2011, Resort Co. restructured and amended the Original Debt (the “Restructuring”) with Bank A and Bank B. As part of the terms of amending the Original Debt: • The Company sold its 50 percent investment in Resort P in exchange for $250 million, which was used to pay down the loan balance that existed before the amendment. This reduced the Original Debt balance from $432 million to $182 million. • The Company agreed to new interest terms, which included raising the interest rate from 5 percent to 6 percent. The modified interest rate is not considered a below market rate for a debt offering with similar risk. • The Original Debt required annual payments consisting of principal and interest ...
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...million in uncollateralized term loans (the “Original Debt”) outstanding with two lenders, Bank A ($129.6 million) and Bank B ($302.4 million). Note that these are not participating loans. Further, issuance costs associated with the Original Debt in the amount of $3 million remained unamortized as of December 31, 2010 ($900,000 and $2.1 million for the loans held by Bank A and Bank B, respectively). As a result of lower than expected travel during the holiday season, the Company projected a short-term cash flow shortage and would not be able to meet the short-term requirements of the Original Debt. In addition, the Company defaulted on a separate debt instrument with Bank C, which resulted in a cross default on the Original Debt held by Bank A and Bank B. On January 1, 2011, Resort Co. restructured and amended the Original Debt (the “Restructuring”) with Bank A and Bank B. As part of the terms of amending the Original Debt: • The Company sold its 50 percent investment in Resort P in exchange for $250 million, which was used to pay down the loan balance that existed before the amendment. This reduced the Original Debt balance from $432 million to $182 million. • The Company agreed to new interest terms, which included raising the interest rate from 5 percent to 6 percent. The modified interest rate is not considered a below market rate for a debt offering with similar risk. • The Original Debt required annual payments consisting of principal and interest ...
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...A restructuring of debt constitutes a Troubled Debt Restructuring if the creditor for economic or legal reasons, related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider (FASB ASC 470-60-15-5). That concession either stems from an agreement between the creditor and the debtor or is imposed by law or court (FASB ASC 470-60-15-6). In a Troubled Debt Restructuring, the creditor’s objective is to maximize recovery of its investment by granting relief to the debtor. The creditor expects to obtain more cash or other value from the debtor, or to increase the probability of receipt by granting the concession, rather than by not granting it. Modifications and exchanges that are not considered Troubled Debt Restructurings are accounted for as either (1) an extinguishment (if the terms are substantially different, greater than 10 percent) or (2) a modification. A Troubled Debt Restructuring involves one of two basic types of transactions: 1. Continuation of debt with a modification of terms. 2. Settlement of debt at less than its carrying amount. In the first type of transaction, the creditor agrees to restructure the original terms of the loan in order to help the debtor meet its short-term cash requirement. The purpose of this modification of terms and reduction or deferral in payment is to help the debtor improve its financial condition and eventually be able to pay the creditor. The second type of transaction...
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...to construct and operate the tunnel. As first order of business, in 1987, Eurotunnel set out to sign a usage contract called Railway Usage Contract (RUC) with the UK, French and Belgian national rail companies. This contract allows the rail companies to utilize 50% of Channel Tunnel capacity in exchange for annual cash payments to Eurotunnel that comprised of a fixed annual fee, a variable fee calculated using toll formula, a contribution to Eurotunnel’s operating costs and a minimum usage charge. Then the company starts raising capital through debt and equity offerings. Eurotunnel got listed in both Paris and London Stock Exchanges and offers discounted (and per my research, free in some cases) travel to shareholders. Construction of the tunnel begins in November of 1987 and it is completed in April 1994. At this point, Eurotunnel has a whopping £8.1 billion in debt and only £1.7 billion in equity. To be honest, this is the part of the paper when my jaw first dropped. I have not been this appalled since I read a case on Enron for one of my undergraduate classes. GESA’s initial cost and revenue projections, its management team’s execution of financial and operational strategies and...
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...[ISSN: 2249 –0892] Vol. 01 – Issue: 01 (Jan - Jun 2011) CORPORATE RESTRUCTURING - A FINANCIAL STRATEGY Vikas Srivastava1 Ms. Ghausia Mushtaq2 ABSTRACT This paper serves the very purpose of defining the corporate restructuring as a financial strategy adopted towards the financial development and enhancement of an organization suffering from a major set back at any level of operation. Technological advancement and environmental or political – legal changes and polices enable the companies to move in the direction routed by the changing environment of the new era. There is a lot of competition in almost all respect as the there is not only the survival of the fittest but also the wittiest. In phase of rapid industrialization, only those organization will survive which will create and able to deliver the maximum value as satisfaction to their customers. The corporate restructuring, as the financial strategy, will make an effect on the overall cost of capital or will have an effort to bring it to the lowest so that the changes with respect to various operational and functional activities of the organization will be taken care of by the organizational changes. Corporate restructuring is one of the most complex and fundamental phenomena that management experiences. Each company has two opposing objectives from which it has to choose: to diversify or to refocus on its core business. Financial restructuring involves the redeployment of corporate assets through divestures of...
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...Restructuring Debt 1 Restructuring Restructuring Debt 2 The three common long term debt options are bonds, notes, and capital leases. These three financing options provide companies with needed resources when looking to finance business opportunities or restructure debt, the company must decide which options if not all are right for their business and restructuring of debt. Bonds, Notes, and Capital Leases Bonds are certificates issued to companies who promise to pay back borrowed money with a fixed interest rate at a certain time or maturity date. The borrower pays the interest or coupon on the bond either annually, semi- annually, or monthly. Bonds that mature in less than a year is called a boll, bonds that mature between one and Ten years are called notes, under writers provide the bond financing and then sell the bonds off to investors for profit on the open market. There are different types of bonds like callable bonds that allow the borrower to pay the bond off before maturity to limit interest paid on the bond. Putable bonds allow the bond holder to demand payment on the principle at an earlier date than specified avoiding coupon payments in the future. Convertible bonds are used by publically traded companies, this allows the principle to be “paid in shares of the company instead of cash” (Money, 2011). Corporate paper are short –term bonds issued to finance business operations. Bonds are used for financing activities for...
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...3663 The Greek Crisis: Causes and Consequences Abstract Greece has reached a point where, under any plausible macroeconomic scenario, public debt will continue growing faster than GDP. Fiscal consolidation alone cannot close the solvency gap. A substantial reduction in the stock of debt is needed. Even post-debt restructuring, there is no guarantee that the government will succeed in its dual goal of restoring fiscal solvency and closing the competitiveness gap. Yet we think Greece stands a better chance of accomplishing these goals from inside the EMU rather than outside it. This chapter takes stock of the factors that led to the explosion of public debt, the loss of competitiveness, and the failure of the first EU-IMF programme. We also present our views on the likely debt restructuring (and post-restructuring) scenarios. JEL-Code: E600, F400. Antonio Garcia Pascual Economic Research Barclays Capital 5 The North Colonnade Canary Wharf E14 4BB, London United Kingdom Antonio.GarciaPascual@barcap.com Piero Ghezzi Economic Research Barclays Capital 5 The North Colonnade Canary Wharf E14 4BB, London United Kingdom 1. Introduction By April 2010, Greece had lost market access, as the economy was contracting by 3% in real terms, the fiscal deficit - partly on account of unreported spending reached 15% of GDP, and public debt rose to more than 125% of GDP. How did Greece get to that point? As in other peripheral countries, upon joining the euro area, access to...
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... José Miguel Salazar Olivas Index 1. Introduction 2. What is a financial restructuration? 3. When is it necessary to do a financial restructuration? 4. Goals of the financial restructuration 5. Fases of the financial restructuration 6. Refinancing costs 7. Conclusions Bibliography 1. Introduction The financial and economic crisis that began in 2007 was generated, among other things, by an excessive debt taken on by households and firms. In a market environment with very modest direct payoffs, all agents sought to force the total return with higher borrowing without considering the consequences in terms of risks. In recent years the continuity of many companies has been guaranteed by the negotiation of restructuring liabilities. Indeed, companies in different industries have...
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...Does the Restructuring of Resort Co.’s Original Debt represent a troubled debt restructuring? The restructuring of the debt should be accounted for as a troubled debt restructuring based on the following: To determine if troubled debt restructuring applies, both of the following conditions must be present: 1. The company must be experiencing financial difficulty 2. Creditor must grant concessions ASC 470-60-55-8 provides relevant implementation guidance in determining whether or not debtor is experiencing financial difficulties. 55-8 All of the following factors are indicators that the debtor is experiencing financial difficulties: a. The debtor is currently in default on any of its debt. b. The debtor has declared or is in the process of declaring bankruptcy. c. There is significant doubt as to whether the debtor will continue to be a going concern. d. Currently, the debtor has securities that have been delisted, are in the process of being delisted, or are under the threat of being delisted from an exchange e. Based on estimates and projections that only encompass the current business capabilities, the debtor forecasts that its entity-specific cash flows will be insufficient to service the debt (both interest and principal) in accordance with the contractual terms of the existing agreement through maturity. f. Absent the current modification, the debtor cannot obtain funds from the sources other than the existing creditors at an effective interest rate equal to...
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...Corporate Debt Restructuring in India Despite of best intentions and efforts, corporate find themselves in financial difficulty because of factors beyond their control or due to internal reasons. The trigger for difficulty might be an unstable macro-economic environment or changes in government policy or regulation or due to an incorrect strategic decision or problems within the company. If a company goes down, it takes an entire ecosystem of creditors, distributors, employees, customers, etc down with it. So at times, for the revival of corporate and for the safety of the money lent by banks and FIs, timely support through restructuring in genuine cases is called for. However, delay in agreement amongst different lending institutions often comes in the way of such endeavours. Based on the experience in countries like the UK, Thailand, Korea, Malaysia, etc. of putting in place an institutional mechanism for restructuring of corporate debt and need for a similar mechanism in India, a Corporate Debt Restructuring System was evolved and detailed guidelines were issued by Reserve bank of India on August 23, 2001 for implementation by financial institutions and banks. CDR is a non-statutory mechanism which is a voluntary system based on Debtor-Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA). The accounts where recovery suits have been filed by the creditors against the company, may be eligible for consideration under the CDR system provided, there is approval by at least...
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...insist lessons need to be learned from the Greek debt restructuring deal and bond exchange, or these insurance-like instruments, untested in a sovereign restructuring before Greece and which are used as a protection against losses on bonds, could lose their appeal. An auction held by 14 banks set a market-wide payout of $2.5bn, or 78.5 per cent of the $3.2bn of net outstanding CDS as of March 9, when a so-called “credit event” was declared by the International Swaps & Derivatives Association, the industry body that rules on pay-outs. The payout was considered fair value by many strategists and investors. But these same strategists and investors said that this was more down to luck than design as the Greek debt exchange, under which private sector holdings of Greek debt were written down by about €100bn, failed to consider the potential negative fallout for CDS. Michael Hampden-Turner, credit strategist at Citi, says: “I would like to see the market look very closely at how CDS works in the event of future sovereign restructurings. We had a lucky break with Greece in that the process went smoothly, but it might not do so the next time round.” Portugal could be next major test The next big test for credit default swaps may be Portugal, according to traders and investors, writes David Oakley. Markets are already expecting a Portuguese debt default as bond prices are hovering around 50 per cent of par for benchmark 10-year debt, a distressed level. Portugal has a smaller bond...
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...CORPORATE RESTRUCTURING Dr. Bernadette D’silva Director, K.G. Mittal Institute of Management, I.T & Research, Malad (West), Mumbai64, Email: Bernadette.dsilva@gmail.com Mrs. Annie Beena Joseph Associate Professor, K.G. Mittal Institute of Management, I.T & Research, Malad (West), Mumbai-64, Email: annie.b.joseph@gmail.com ABSTRACT Corporate Restructuring has become a major component in the financial and economic environment all over the world. It is the process of redesigning one or more aspects of a company. The process of reorganizing a company may be implemented due to a number of different factors, like positioning the company to be more competitive, survive a currently adverse economic climate, or poise the corporation to move in an entirely new direction and many more. Corporate restructuring is needed to counter challenges in competitive business environment. Most of the organizations carry out corporate restructuring as per the needs of the business. Some do it through mergers, acquisitions, and some by demergers as well; while some others make structural changes and carry out resource optimization in the organization. This paper analyses the success rate of corporate restructuring program (CRP) in India. It also tries to understand the implication of corporate restructuring program with the help of a case study. The present paper is mainly based on secondary data. The paper makes use of SPSS 16 and MS-excel for data Analysis Keywords: Corporate Restructuring, Challenges...
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...Bankruptcy and Restructuring at Marvel Entertainment Group Chen Ziqiang Wu Libin Lin Yingshuai Deng Linli Lim Yihao 2011/11/29 1. Why did Marvel file for Chapter 11? Were the proble ms caused by bad luck, bad strategy, or bad execution? We think that Marvel filed for Chapter 11 mainly due to its bad business strategy. Three of its six business lines, Trading cards, Stickers and Comic Books started facing the decline in sales after year 1993. There were two main reasons for this decline: First, these businesses increasingly had to compete with alternative forms of child entertainment (mainly video games). Second, the decline in sales was driven by disappointed collectors who had viewed comic books as a form of investment and stopped buying them as company stopped increasing the prices. We believe that the company should have foreseen these events while performing a market research and forming a long-term business and financial strategy. The three unpromising business lines accounted to 61% of total revenues of a company in year 1995. At the same time, the company's financial strategy was based on highly optimistic business expectations and was not suitable for unfavorable turn of demand for entertainment products towards video games. Due to its high leverage (52%), the company was not able to serve all the debt in case of sharply declining revenues. It is obvious that the company did not anticipate the change in customers' preferences and was wrong...
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...Eurotunnel S.A. (A) The first restructuring 1995-1998 The aim of the 95/98 restructuring was to adjust debt levels and terms so that interest expenses could be paid and debts serviced, even considering Eurotunnel’s (ET’s) - compared to budgeted forecasts - higher construction cost, delayed opening, and worse than expected post-construction financial performance. Revenue kept on decreasing in 99/00 (economic growth slowed, decreased tourism, traffic stoppages, telecom cables sales dropped), and costs increased (security). While ET still could service interest payments to creditors due to “stabilization facility’”, the company carried a net loss of £-124 M in 2000, and the restructuring was evidently not sufficient for the long term. Operating profit was still positive in 2000, so clearly the fault was still too high interest expenses. A reason the interest expenses was still too high was that although the debt outstanding was lowered from £8.9 B to £6.3 B, it had in part been replaced by other interest-bearing instruments. These included £1 B of interest bearing equity notes, £1.2 B of interest-carrying PLNs (although initially low rates) and £1.5 B long-term resettable interest-bearing advances. The restructuring did consequently not decrease interest expenses enough in relation to the 99/00 operating profit, which was even worse than that of previous years. As can be seen by the 00/02 restructurings, the company needed more buyback of debt and equity and lower interest rates...
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...WP/13/266 Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten Carmen M. Reinhart and Kenneth S. Rogoff WP/13/266 © 2013 International Monetary Fund IMF Working Paper Research Department Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten1 Prepared by Carmen M. Reinhart and Kenneth S. Rogoff Authorized for distribution by Stijn Claessens December 2013 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Abstract Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging market counterparts. The current phase of the official policy approach is predicated on the assumption that debt sustainability can be achieved through a mix of austerity, forbearance and growth. The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression. As we document, this claim is at odds with the historical track record of...
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