RX prep
Is chapter 7 considered an in court solution
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Yes
thanks -
when would a company prefer chapter 7?
No company really prefers chap 7 these days. everybody has a lme or two in them. Management obviously doesnt want to get fired or lose control of the company during chap7 and probably has equity that would get wiped out. Advisors are going to make more if the company restructures and survives, and then goes into bk again.
Chapter 7 places the company under the control of an independent trustee immediately, operations usually cease, and the trustee conducts a very procedurized, but often slower and more fragmented sale of the business. It's really only a last resort like stripping the copper wire out of your house because you are about to get evicted type thing
thanks -
How are you thinking about v4 LMEs? I kind of get LMEs in general are moving towards it being more process driven and market tested, but thinking about LME 4.0s is still a bit confusing.
i get that v3 is carrot sticks with lawyer in the room, but it's still hard to wrap my head around how v4 is differentiated from v3.
is it v3 runs the deal first, then runs the market tests and cleaner process
vs.
v4 would run the process first (since the company roughly knows the kind of liquidity and runway they want), and a deal would be formed based on how the market reacts to these exchanges?
I don't think you should aim to describe it as v3 or v4, not sure where you picked up the terms from and you may end up confusing ppl with this terminology. If I'm not mistaken you mean v3 is some of the LMEs where outcome was driven by lawyers and predetermined before any real negotiations and v4 is more process driven.
I think you are right into the direction LMEs are heading, there will still be some LMEs that test the legal boundaries of whats happening but it's been a more collaborative year, especially as alot of the repeat players in PC band together either in non pro rata covenants or less interest in pursuing aggressive in-group vs out-group creditor on creditor violence.
This being the case has made the economic outcome a bit more uncertain than in "v3" where you knew you were about to get screwed and your main recourse was to go sue and scream bloody murder about the legality of what they were doing to you. Now in "v4" there are multiple possible outcomes that perhaps the sponsor is willing to accept and the outcome isn't as predictable as before.
A company generally prefers chapter 11 because management stays in control and the business has more flexibility - you could do a reorganization, asset sale, or chapter 11 liquidation, or convert to chapter 7.
If a company is obviously going to fail the feasibility test, is filing a third time (chapter 33), or is filing a second time in a short period, then the debtor would simply file as a chapter 7 to liquidate cheaply.
It could be the primary case for very small businesses where the owner wants a different party liquidate. For example, if you inherit a business with high debt and just want the equity value from it (if it exists), you could file for chapter 7 (very cheap) and the US Trustee would liquidate. If there's any residual value you get it, if not then you don't. However, these aren't relevant for restructuring IB.
Lol chapter 7 is in court but not a solution. A solution solves a problem. Ch 7 just dissolves everything...most RX EB's (mine included) won't represent Ch 7 cases. Not worth it
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