The Prepackaged Bankruptcy: Restructuring Troubled Credit

• Published in: The Secured lender 1991-07, Vol.47 (4), p.24
• Main Authors: Morgenstern, Peter D, Rubin, Kenneth L
• Format: Article
• Language: English
• Subjects: Advantages; Bankruptcy; Corporate finance; Debt management; Recommendations
• ISSN: 0888-255X

Although the most widely discussed financing tool for highly leveraged buyouts, acquisitions, and recapitalizations in the 1980s was the issuance of so-called junk bonds, the senior financing for these transactions typically was provided by banks and other institutional lenders that now are confronted with the task of working out credits to overleveraged companies. To survive, these companies are now seeking to restructure their obligations. One reorganizational method well-suited for some of these troubled companies is the prepackaged Chapter 11 bankruptcy. In a prepackaged bankruptcy case, the company negotiates a plan and solicits acceptances from creditors prior to filing a formal bankruptcy proceeding. A principle advantage of this technique is the speed with which a company can emerge from Chapter 11. It is not a viable solution for firms caught in an industry downturn or for those whose problems resulted from major litigation, strikes, or other problems related to operations or market conditions.