Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts and Breakups (Second Edition)

Abstract

This book features twenty-four case studies and technical chapters on strategies and techniques used by financially stressed companies to restructure their liabilities, assets, and obligations to employees and other stakeholders, as well as strategies that hedge funds and other investors use to trade in the financial claims of these companies. The case studies represent some of the most complex, controversial and innovative restructurings of the past 20 years, and are based on extensive interviews with executives, investment bankers, attorneys, creditors, investors, and others who were key participants in these restructurings. Topics covered in the book include Chapter 11 bankruptcy reorganization, distressed debt investment strategies, distressed bond exchange offers, Section 363 asset sales, equity spin-offs and carve-outs, tracking stock, equity roll-ups, asset divestitures, employee layoffs and corporate downsizing, mergers and acquisitions, leveraged buyouts, negotiated wage give-backs, employee stock ownership plans, and use of Chapter 11 to restructure corporate pension and unfunded medical benefit plans.

Reflecting the sea of change that has occurred in the corporate restructuring world since the first edition of this book was published almost ten years ago, the second edition includes new case studies that examine the central role of distress hedge funds ("vulture investors") in distressed restructurings (Delphi Corp., The Finova Group, Kmart and ESL Investments); changes to the U.S. Bankruptcy Code that were introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005; the increasing use of Section 363 of the U.S. Bankruptcy Code to sell off bankrupt firms’ assets (Adelphia Communications); the market for credit derivatives (Delphi Corp. and the Credit Derivatives Market); corporate restructuring practices outside the U.S. (Groupe Eurotunnel S.A., Buenos Aires Embotelladora S.A (BAESA), Alphatec Electronics Pcl, Loewen Group); and restructuring in severely distressed industries, including financial services, automotive manufacturing, and technology.

The book is organized around three modules. Each module features case studies that highlight a particular area of restructuring, including the restructuring of debt and liabilities; of equity and assets; and of employees’ claims. Each module is preceded by an introduction that surveys related academic research on the topic, and describes the key management challenges that companies face in these situations. Each case study is accompanied by a set of “assignment questions” that are designed to help students and general readers focus on the key issues raised in the case. Finally, a technical appendix summarizes techniques that can be used to value the assets and operations of companies that are restructuring.

Keywords: Bankruptcy, chapter 11, restructuring, distress investing, buyouts, divesitures, layoffs

JEL Classification: G33, G34, K19, K22