Transcript Law for Business

Stock Market Analysis and
Personal Finance
Mr. Bernstein
Bankruptcy and Distressed Securities
January 2017
Stock Market Analysis
& Personal Finance
Mr. Bernstein
Importance of Bankruptcy Laws
Sound Bankruptcy Laws promote risk-taking in an
economic system by clarifying potential outcomes
Business owners have a path to a restart
Creditors understand the process for distributing
remaining assets of a failed business
The US Constitution specifically grants Congress
exclusive power to establish Bankruptcy Laws
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Bankruptcy Laws
Chapter 11: Reorganization of Businesses
Used primarily by corporations
Litigation and debt collection against business is
placed on hold
Plan is created for dispensing some obligations and
redistributing remaining assets, often with the
business entity continuing operations with a
prospect of profitability going forward
Plan is voted on by various creditors
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Bankruptcy Laws
Chapter 11: Reorganization of Businesses
Allows continuation of operations while a restructuring
of finances is designed and implemented.
Provides an orderly process which gives potential
lenders or investors greater comfort to work with
higher-risk businesses.
Allows restructuring of businesses in a way which is
less disruptive to employees and other stakeholders.
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Rationale for Bankruptcy Chapter 11
$$ Value of a business reorganized into a going
concern
>
$$ Value of sum of parts liquidated individually
Some goodwill may exist in business franchise even if
it cannot pay its bills
More value is therefore available to pay creditors
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Distressed Securities
Stocks, bonds or other securities of companies
that are in or near default or reorg
Standard fundamental analysis is difficult
Assessments of potential bankruptcy outcomes
are a major factor
Greater uncertainties = higher risk/higher
return
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Distressed Securities and Yields
Investment Grade: KO 3.30% of 9/01/21
Yield to Maturity is 2.30%, 35 bps over Tsys
High Yield: TOY 8.75% of 69/01/21
Yield to Maturity is 9.35%, 740 bps over Tsys
Distressed: Caesars 12.75% of 4/15/18
Price: 21.5 cents on the dollar
Prices as of June 2015
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