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RECOMMENDED READING: The Investor’s End Game in Chapter 11

Recommended ReadingIn “Restructurings and Distressed Investing,”[1] James Inness and John Houghton of Latham & Watkins explain that an investor’s return depends upon the debtor making appropriate operational, financial and corporate alterations – of course – but also upon the investor conserving its power to effect such changes (usually in concert with other constituents) according to a realistic time horizon conceived at the outset of the case.

Even as substantial operational changes are executed, an investor must attend to the financial and corporate structure end-game throughout.  What entity or entities will emerge?  With what tax attributes?  What kinds of shares, warrants or share subscription rights will be established in the plan?  What are the consequences of each scheme?  Can the investor gain sufficient consents for its preferred scheme?

The desired time-horizon might be attainable only with pre-approval from other investors, for everything from the right to request amendment of the capital structure to re-financing or recapitalization, as well as reserving veto and board appointment rights (notwithstanding financing provisions that impose limits upon changes in control or the tripping of other financial covenants).

This useful article can help those seeking a checklist of the moving parts inherent in a complex reorganization. https://www.lw.com/thoughtleadership

[1] Latham & Watkins’ Client Alert Commentary, March 2, 2015.

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