Brandlin Logo
June 2015
Rehab or Liquidate?
 

While brand-names including Radio Shack, PennySaver and Corinthian Colleges made headlines this year after filing for bankruptcy protection, they are part of a declining trend. For the 12 months ending March 31, 2015, business filings under chapters 7 and 11 of the U.S. Bankruptcy Code hit their lowest points since the Great Recession officially started in December 2007:


 

12 Months Ending March 31  

New Chapter 7 Filings
New Chapter 11 Filings
2015:  Recent low
17,527
5,954
2010:  Peak filings
42,346
13,553
2007:  Pre-Recession
13,838
4,668


Source:  www.USCourts.gov

 

Despite these trends, the workout departments of our lender clients continue to be busy. What seems different is how they spend their time. Today, many are opting for "borrower rehab" over liquidation in pursuit of more favorable outcomes. We are finding that this different thinking in workout departments can result in a big payday.

Case in Point 

One of our clients, a money center bank, was the primary lender to a rapidly growing business in an economically-cyclical industry. When the borrower's sales and EBITDA fell by 55% and 86% respectively, it filed Chapter 11 and pursued a reorganization that would have resulted in a significant write-down of the lender's debt. Rather than take what they could at the time, our client opposed the plan in pursuit of an operational and financial turnaround. Some of the company's other lenders either took back their collateral or sold their debt at a severe discount. 

 

We worked closely with the company's management and board of directors, our client, and our client's legal counsel to identify and analyze the potential risks and benefits of various alternatives. The team's diligent approach resulted in improved performance and a clean balance sheet for the company. 

 

Less than five years after the company filed for bankruptcy protection, our client received full payment of all outstanding amounts as well as payment on warrants awarded in the company's plan of reorganization.  That's a good ROI.  

I'm interested in your point-of-view on workout trends.  

Call me at 310-789-1777 or email me at jeff@brandlin.com

About Us:  Brandlin & Associates  is an exclusive provider of accounting due diligence, financial and strategic consulting services. We pride ourselves on offering superior technical expertise, years of practical experience and unparalleled service to decipher financial and operational performance metrics. As a result, our clients are able to make informed decisions in a timely manner.

310.789.1777