Distress Investing : Principles and Technique

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2009-04-13
  • Publisher: Wiley
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Praise for Distress Investing"Marty Whitman has distilled decades of distressed investing experience into a text that is a must-read for everyone interested in the field, whether a student or a professional investor."-Wilbur L. Ross, Chairman and CEO, WL Ross & Co. LLC"Distress Investing: Principles and Technique represents a detailed and unique perspective on an arcane arena of investment that is going to get a lot more attention. Marty Whitman is the master, and has set the standard for many years."-Sam Zell, Chairman, Equity Group Investments, LLC"Martin Whitman and Professor Diz have produced a seminal work on the ins and outs of distressed investing for all distressed debt investors. It is jam-packed with information and guidance for the novice and the experienced. A must-read for anyone interested in distressed investing."-Lewis Kruger, Stroock & Stroock & Lavan LLP"Marty Whitman, a legend in distress investing, packs decades of experience into these pages. The restructuring of the capital markets currently under way is sure to provide great distress investment opportunities, which this guide book can make count for you."-Bruce Flatt, Brookfield Asset Management Inc."The principles found in this book are those I used in the reorganization of my business from bankruptcy to an S&P 500 company with an investment grade rating and a multibillion-dollar market capitalization. An excellent premier by Marty Whitman and Professor Diz, integrating economic theory with real-world investment to help investors of all shapes and sizes understand and invest in distressed securities."-Gene Isenberg, Chairman and CEO, Nabors Industries, Inc."Marty Whitman, the unquestioned 'Dean' of active distressed investors, and Fernando Diz, one of the few academics specializing in distressed investing, have teamed up to provide perhaps the best and most comprehensive primer on distressed securities and markets. I learned so much from this remarkable volume."-Edward I. Altman, Max L. Heine Professor of Finance, NYU Stern School of Business, Director of credit and debt markets research at the NYU Salomon Center and adviser to several financial institutions including, Paulson & Co. and Concordia Advisers

Author Biography

Martin J. Whitman is Chairman and co-CIO of Third Avenue Management LLC. He has taught courses in value investing and distressed investing for the past thirty years at the Schools of Management at both Syracuse University and Yale University. Whitman is also the author of the Wiley titles Value Investing and The Aggressive Conservative Investor.

Fernando Diz is the Martin J. Whitman Associate Professor of Finance and Director of the Ballentine Investment Institute at Syracuse University. His research specialties are in the areas of trading, derivative securities, and value and distress investing. Diz has written for the Journal of Futures Markets, the Review of Financial Studies, and the Journal of Alternative Investments.

Table of Contents

Forewordp. xiii
Prefacep. xv
Acknowledgmentsp. xxii
The General Landscape of Distress Investing
The Changed Environmentp. 3
Trends in Corporate Debt Growth and Leverage before the Financial Meltdown of 2007-2008p. 4
Junk Bonds and the Levering-Up Periodp. 6
The Syndicated Loan Market and Leveraged Loansp. 12
Financial Meltdown of 2007-2008p. 16
Principal Provisions of the 2005 Bankruptcy Act as They Affect Chapter 11 Reorganizations of Businessesp. 22
The Theoretical Underpinningp. 27
What Market?p. 27
Toward a General Theory of Market Efficiencyp. 29
External Forces Influencing Markets Explainedp. 32
What Risk?p. 34
Capital Structure and Credit Riskp. 38
Valuationp. 39
The Company as a Stand-Alone Entityp. 41
Control and Its Vital Importancep. 42
The Causes of Financial Distressp. 43
Lack of Access to Capital Marketsp. 44
Deterioration of Operating Performancep. 46
Deterioration of GAAP Performancep. 48
Large Off-Balance-Sheet Contingent Liabilitiesp. 51
Deal Expenses and Who Bears Themp. 53
Attorneys and Financial Advisers' Compensation Structure and the Distribution of the Fee Piep. 54
Time in Chapter 11 and Number of Legal Firms Retainedp. 66
Determinants of Legal Fees and Expensesp. 67
Determinants of Financial Advisers' Fees and Expensesp. 68
Can Professional Costs Be Excessive?p. 68
Appendixp. 69
Other Important Issuesp. 71
Management Compensation and Entrenchmentp. 71
Tax and Political Disadvantagesp. 73
The Five Basic Truths of Distress Investingp. 77
No One Can Take Away a Corporate Creditor's Right to a Money Payment Outside of Chapter 11 or Chapter 7p. 78
Chapter 11 Rules Influence All Reorganizationsp. 82
Substantive Characteristics of Securitiesp. 84
Restructurings Are Costly for Creditorsp. 86
Creditors Have Only Contractual Rightsp. 87
Restructuring Troubled Issuers
Voluntary Exchangesp. 91
Problems with Voluntary Exchangesp. 92
The Holdout Problem Illustratedp. 93
Making a Voluntary Exchange Workp. 94
Tax Disadvantages of a Voluntary Exchange versus Chapter 11 Reorganizationp. 95
A Brief Review of Chapter 11p. 99
Liquidations and Reorganizationsp. 100
Starting a Case: Voluntary versus Involuntary Petitionsp. 100
Forum Shoppingp. 101
Parties in a Chapter 11 Casep. 101
Administration of a Chapter 11 Casep. 103
The Chapter 11 Planp. 109
The Workout Processp. 117
Parties and Their Differing Needs and Desiresp. 117
Types of Chapter 11 Casesp. 120
Leverage Factors in Chapter 11p. 125
The Investment Process
How to Analyze: Valuationp. 133
Strict Going Concern Valuationp. 134
Resource Conversion Valuationp. 146
Liquidation Valuationsp. 148
Due Diligence for Distressed Issuesp. 151
Distress Investing Risksp. 157
Risks Associated with the Alteration of Prioritiesp. 158
Risks Associated with Collateral or Enterprise Valuationp. 165
Reorganization Risksp. 168
Other Risksp. 168
Form of Consideration versus Amount of Considerationp. 171
Cases and Implications for Public Policy
Brief Case Studies of Distressed Securities, 2008-2009p. 177
Performing Loans Likely to Remain Performing Loansp. 178
Small Casesp. 182
Large Casesp. 184
Capital Infusions into Troubled Companiesp. 184
A Small Case: Home Products Internationalp. 187
The Early Yearsp. 188
Growth by Acquisitionsp. 189
Retail Industry Woesp. 192
The Fight for Controlp. 195
Amendment of Indenture and Event of Defaultp. 196
The Decision: Prepackaged Chapter 11p. 197
Treatment of Impaired Classes under the Planp. 198
Financial Means for Implementation of the Planp. 199
Going-Concern and Liquidation Valuationsp. 199
A Large Reorganization Case: Kmart Corporationp. 203
Landlords and Unexpired Leasesp. 204
Vendors and Critical Vendor Motionsp. 206
Management and KERPs Pre-2005 BAPCPAp. 208
Fraudulent Transfersp. 209
Subsidiary Guarantees and Substantive Consolidationp. 210
Chapter 11 Committees and Out-of-Control Professional Costsp. 211
Blocking Positionsp. 211
Buying Claims in Chapter 11p. 214
Debtor-in-Possession Financingp. 215
Kmart's Plan of Reorganization and Plan Investorsp. 218
Investment Performancep. 222
An Ideal Restructuring Systemp. 225
Feasibility and Cash Bailoutsp. 226
Good Enough Rather Than Idealp. 226
Highly Beneficial Elements in the U.S. Restructuring Systemp. 226
Goals of an Ideal Restructuring Systemp. 228
Suggested Reformsp. 229
Notesp. 233
About the Authorsp. 238
Indexp. 239
Table of Contents provided by Ingram. All Rights Reserved.

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