Capital Structure Following Chapter 11 Reorganizations

2004 ◽  
Author(s):  
Randall A. Heron ◽  
Kimberly Rodgers Cornaggia ◽  
Erik Lie
Keyword(s):  
Capital Structure

scholarly journals Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

2021 ◽  
Author(s):  
Dean Corbae ◽  
Pablo D’Erasmo
Keyword(s):  
Capital Structure ◽  
Firm Dynamics ◽  
Law Firms ◽  
Bankruptcy Law ◽  
Entry And Exit ◽  
Dynamics Model ◽  
Financial Decisions ◽  
Long Run ◽  
Bankruptcy Policy

Abstract In this paper, we ask how bankruptcy law affects the financial decisions of corporations and its implications for firm dynamics. According to current U.S. law, firms have two bankruptcy options: Chapter 7 liquidation and Chapter 11 reorganization. Using Compustat data, we first document capital structure and investment decisions of non-bankrupt, Chapter 11, and Chapter 7 firms. Using those data moments, we then estimate parameters of a general equilibrium firm dynamics model with endogenous entry and exit to include both bankruptcy options. Finally, we evaluate a bankruptcy policy change similar to one recommended by the American Bankruptcy Institute that amounts to a “fresh start” for bankrupt firms. We find that changes to the law can have sizable consequences for borrowing costs and capital structure which via selection affects productivity, as well as long run welfare.

Winn-Dixie Stores in 2005 (B): Cleanup on Aisle 11

2017 ◽  
pp. 1-7
Author(s):  
James Shein ◽  
Evan Meagher
Keyword(s):  
Supply Chain ◽  
Capital Structure ◽  
Economies Of Scale ◽  
Low Cost ◽  
Grocery Store ◽  
Administrative Costs ◽  
Structure Treatment ◽  
Short And Long Term ◽  
Expected Benefits

Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence. Instead of improving the company's position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving. Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy. Students will take the view that Paul “Flip” Huffard, lead consultant from Blackstone LP, had in determining the valuation and new capital structure of the company. These decisions would be critical, as they affected what each creditor class would receive and whether Winn-Dixie could emerge from bankruptcy.Students will: 1. Assess the importance and negative financial impact of past strategic moves, and suggest possible future strategic directions and the expected benefits of such changes. 2. Learn quantitative valuation methods for a company in Chapter 11 and their effects on stakeholders. 3. Learn the elements of a plan of reorganization, including the capital structure, treatment of multiple creditor groups, and management compensation. 4. Discuss sources and uses of capital during a Chapter 11 turnaround.

Horizon Lines, Inc.

2017 ◽  
pp. 1-14
Author(s):  
Kenneth M. Eades ◽  
Daniel Hake
Keyword(s):  
Capital Structure ◽  
Corporate Finance ◽  
Advantages And Disadvantages ◽  
Wide Range ◽  
Financial Restructuring

It is recommended that this case be taught either just before or just after another Chapter 11 case. Students must to decide whether Horizon Lines should seek Chapter 11 protection or attempt a voluntary financial restructuring. Students have a wide range of financial restructuring alternatives to consider that should give them an appreciation of the advantages and disadvantages faced by a firm choosing to use the bankruptcy court. The case also is best taught to experienced students who understand corporate finance fundamentals and, in particular, grasp the principes of valuation and capital structure.

Winn-Dixie Stores in 2005 (A): Cleanup on Aisle 11

2017 ◽  
pp. 1-21
Author(s):  
James B. Shein ◽  
Evan Meagher
Keyword(s):  
Supply Chain ◽  
Capital Structure ◽  
Economies Of Scale ◽  
Low Cost ◽  
Grocery Store ◽  
Administrative Costs ◽  
Structure Treatment ◽  
Short And Long Term ◽  
Expected Benefits

Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence. Instead of improving the company's position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving. Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy. Students will take the view that Paul “Flip” Huffard, lead consultant from Blackstone LP, had in determining the valuation and new capital structure of the company. These decisions would be critical, as they affected what each creditor class would receive and whether Winn-Dixie could emerge from bankruptcy.Students will: 1. Assess the importance and negative financial impact of past strategic moves, and suggest possible future strategic directions and the expected benefits of such changes. 2. Learn quantitative valuation methods for a company in Chapter 11 and their effects on stakeholders. 3. Learn the elements of a plan of reorganization, including the capital structure, treatment of multiple creditor groups, and management compensation. 4. Discuss sources and uses of capital during a Chapter 11 turnaround.

The Fall of the Gentleman Banker

2020 ◽  
pp. 163-188
Author(s):  
Sarah Paterson
Keyword(s):  
Capital Structure ◽  
Corporate Reorganization ◽  
Made In

This chapter focuses on shifts in the identities of the financial creditors who participate in the reorganization of a complex, leveraged capital structure. It argues that the changing identities of these participants undermine some of the assumptions made in Chapter 11 about the ways in which reputational concern will interact with corporate reorganization law to motivate bargaining. Once again, the account in the chapter reveals why the comparatively recent development of corporate reorganization law to deleverage a complex capital structure in England means that the same assumptions are not made about the identities of the participants in the process, the role of reputation, or the bargaining environment in general.

The Fall of the Lifetime Manager

2020 ◽  
pp. 139-162
Author(s):  
Sarah Paterson
Keyword(s):  
Capital Structure ◽  
Control Rights ◽  
Corporate Reorganization ◽  
Control Concept

Chapter 6 explores the significance of shifts in the identities of debtor firms, and of the individuals who manage them, for the concept of debtor control rights in Chapter 11. The argument is made that these changes in identities suggest reasons to question the concept of allocation of control rights to the debtor as a means of incentivizing early filing. However, the argument is made that the concept of debtor control rights is important in a different way when the purpose of the case is to deleverage a complex, leveraged capital structure. When the chapter turns to examine England, it reveals that participants in this type of reorganization case have mobilized corporate reorganization law in ways which take account of the new demands of the debtor control concept, but without bringing on board inherited ideas associated with the concept from traditional US corporate reorganization practice.

LESSONS ON CAPITAL STRUCTURE FROM CHAPTER 11 REORGANIZATIONS

1995 ◽  
Vol 8 (4) ◽  
pp. 61-70
Author(s):  
Michael J. Alderson ◽  
Brian L. Betker
Keyword(s):  
Capital Structure

LESSONS ON CAPITAL STRUCTURE FROM CHAPTER 11 REORGANIZATIONS

1996 ◽  
Vol 8 (4) ◽  
pp. 61-70 ◽  
Author(s):  
Michael J. Alderson ◽  
Brian L. Betker
Keyword(s):  
Capital Structure

Investor-State Dispute Settlement under NAFTA Chapter 11: The Shape of Things to Come?

1998 ◽  
Vol 35 ◽  
pp. 263-290
Author(s):  
J. Anthony VanDuzer
Keyword(s):  
Free Trade Agreement ◽  
Dispute Settlement ◽  
Trade Agreement ◽  
Minimum Standards ◽  
The North ◽  
State Behaviour ◽  
Nafta Chapter 11 ◽  
To Come ◽  
The Right

SummaryRecently, there has been a proliferation of international agreements imposing minimum standards on states in respect of their treatment of foreign investors and allowing investors to initiate dispute settlement proceedings where a state violates these standards. Of greatest significance to Canada is Chapter 11 of the North American Free Trade Agreement, which provides both standards for state behaviour and the right to initiate binding arbitration. Since 1996, four cases have been brought under Chapter 11. This note describes the Chapter 11 process and suggests some of the issues that may arise as it is increasingly resorted to by investors.

Analysis of Factors Affecting Capital Structure in Food and Beverage Manufacturing Company

2018 ◽  
Vol 1 (2) ◽  
pp. 1-14
Author(s):  
Nur Hajja Aini ◽  
St Habibah
Keyword(s):  
Capital Structure ◽  
Firm Size ◽  
Significant Influence ◽  
Fixed Effects ◽  
Random Effect Model ◽  
Manufacturing Companies ◽  
Business Risk ◽  
Growth Opportunities ◽  
Food And Beverage ◽  
The Capital Structure

The purpose of this research to analyze the influence of firm size, liquidity, growth opportunities, tangibility asset, and business risk to the capital structure of listed food and beverage manufacturing companies in Indonesia and Vietnam Stock Exchange from 2010 to 2016. The result shows that the fixed effects model should be appropriate for this study as compared to the random effect model. Capital structure significantly differences between the two countries. Firm size has a positive but insignificant influence on the capital structure in Indonesia, whereas it has a positive and a significant influence on the capital structure in Vietnam. Liquidity has a negative and significant influence on the capital structure both in Indonesia and Vietnam. Growth opportunities have a negative but insignificant influence on the capital structure both in Indonesia and Vietnam. Asset tangibility has a positive but insignificant influence on the capital structure in Indonesia, but it has the negative but insignificant influence on the capital structure in Vietnam. Ultimately, the business risk has a negative and significant influence on the capital structure in Indonesia but has a positive and insignificant influence on the capital structure in Vietnam.

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