公司理财原版英文课件Chap030.ppt

30-* Financial Distress Chapter 30 Copyright ? 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Key Concepts and Skills Be able to define financial distress and understand what happens to a firm in distress Understand the difference between liquidation and reorganization Understand the absolute priority rule Understand the potential benefits of a private workout versus formal bankruptcy Understand the Z-Score Model for predicting bankruptcy Chapter Outline 30.1 What Is Financial Distress? 30.2 What Happens in Financial Distress? 30.3 Bankruptcy Liquidation and Reorganization 30.4 Private Workout or Bankruptcy: Which is Best? 30.5 Prepackaged Bankruptcy 30.6 Predicting Corporate Bankruptcy: The Z-Score Model 30.1 What Is Financial Distress? Financial distress is a situation where a firm’s operating cash flows are not sufficient to satisfy current obligations, and the firm is forced to take corrective action. Financial distress may lead a firm to default on a contract, and it may involve financial restructuring between the firm, its creditors, and its equity investors. Insolvency Stock-base insolvency: the value of the firm’s assets is less than the value of the debt. Assets Debt Equity Solvent firm Debt Assets Equity Insolvent firm Debt Note the negative equity Insolvency Flow-base insolvency occurs when the firms cash flows are insufficient to cover contractually required payments. Contractual obligations Insolvency $ Firm cash flow Cash flow shortfall time Largest U.S. Bankruptcies Firm Liabilities (in $ millions) Date Lehman Bro. 613,000.00 September 2008 Conseco Inc. $56,639.30 December 2002 Worldcom Inc. 45,984.00 July 2002 Refco, Inc. 33,300.00 October 2005 Enron Corp. 31,237.00 December 2001 30.2 What Happens in Financial Distress? Financial distress does not usually result in the firm’s death. Firms deal with distress by: Selling major assets. Merging with another firm. Reducing