Corporate bankruptcy filings reached historic levels in 2008. The many problems at financial services companies that were at the forefront of the financial crisis received substantial media attention. However, the number, types and size of companies now considering bankruptcy extend well beyond the financial services industry, covering the depth and breadth of our economy. Organizations at risk include automotive manufacturers and their supply chains, airlines, retailers, technology and media companies, real estate concerns, leasing and credit card companies, and many others.
As more and more companies turn to corporate restructuring to overcome financial and operational burdens, creditors are playing an increasingly pivotal role in the overall strategy and outcome of these restructuring endeavors. Creditors are faced with making critical decisions to protect their interests when dealing with companies engaged in a complex restructuring, as well as those preparing for or having already filed for bankruptcy.
Key indicators that a company with which a creditor is working may be in distress include:
- Signs of troubled credit – not paying in a timely manner
- Going concern opinions • Loan covenant defaults
- Industry downturn
- Requests for increased credit lines
- Disclosed forbearance agreements or covenant waivers
- Bondholder default notices
- Retention of workout specialists, CRO or bankruptcy counsel
Challenges and Opportunities
Companies are faced with many questions when they become a creditor in bankruptcy, including:
- Should my company provide post-petition credit? • What should we do after being notified as an unsecured creditor in a bankruptcy filing?
- Is our company’s exposure substantial or complex?
- Should our company seek to be appointed to the creditors’ committee?
- Is our company a “critical vendor”?
- Should we hire professionals?
- Do we have any outstanding agreements with the debtor?
- Do I have a “priority” or “administrative” claim that will provide payment to me before other general unsecured creditors?
As a creditor, a company has many opportunities to manage its exposure in a bankruptcy. It also can play a significant role in determining the debtor’s course of action and treatment of the creditors overall. These opportunities may include being appointed to the unsecured creditors’ committee, fighting to protect the company’s claims against the debtor and reclaiming goods delivered.
Our Point of View
As a creditor, a company’s most important issue is protecting its interests. The ability to assess a situation quickly, identify the strengths and weaknesses, and determine a specific course of action are the necessary steps needed to place the creditor in a stronger position with respect to the risks attendant to the restructuring process.
How We Help Companies Succeed
Protiviti represents the interests of secured creditors, individual unsecured creditors and unsecured creditors’ committees. In each of these roles, we work to develop solutions that maximize overall recovery. We provide financial consulting services that enable creditors to make confident decisions and gain a better understanding of the debtor’s outlook.
Our professionals assess the feasibility of any plans proposed by the debtor, analyze the cash flow risks and opportunities, review the plan for its tax consequences, and monitor performance following the plan confirmation. Additionally, we work directly with the debtor and the debtor’s financial advisors to maximize the return to all interested parties.
Protiviti’s creditor services include the following:
- Evaluate and negotiate business and restructuring plans as well as restructuring alternatives.
- Assess and evaluate the debtor’s strategies.
- Value the assets of the debtor as a going concern and in a liquidation scenario.
- Monitor compliance with DIP financing.
- Perform financial and operational due diligence.
- Perform valuation services.
- Conduct preference and fraudulent transfer analysis.
- Provide expert testimony.
- Protiviti served as the financial advisors to the official committee of unsecured creditors to the nation’s secondlargest electronics retailer. Protiviti worked closely with the committee, providing a variety of information and analyses to creditors in order to assist them in making informed post-petition trade credit decisions.
- Protiviti was retained as financial advisors to the official committee of unsecured creditors to an energy trading group of companies with more than $1 billion in combined claims. As a result of our successful work for the committee, we were appointed plan administrator and a director of the liquidating entities, overseeing the distribution of over $600 million to creditors. At the outset of the bankruptcy case and in accordance with the confirmed plan of liquidation and related disclosure statement, initial distributions to allowed unsecured creditors in these companies were expected to be in the range of 20 to 30 cents on the dollar. As a result of our involvement, these figures are currently estimated at 60 to 70 cents on the dollar.