Can anyone explain about “post reorg equity”?
Hi. As I said above, I’d like to ask you guys about “post reorg equity”. I heard it is a kind of senior loan with conditions, but I cannot figure out exactly what it is really. Could you explain the concept and practical use of it? Thank you in advance
Post reorg equity usually refers to the division of equity after a restructuring / recapitalization. E.g. a firm is burdened with too much debt and the company cuts an out of court deal with its unsecured noteholders so that they equitize a portion of their debt to become majority shareholders. In this case we say the unsecured noteholders become majority holders of the post reorg equity. Unsure what this has to do with your explanation above
I’m hindsight you might be thinking of DIP loans - Debtor In Possession loans which are a feature of Chapter 11 bankruptcies. In such a case, some stakeholder such as an existing lender is incentivized to provide expensive, super senior financing to the company in bankruptcy. This is as they already have a stake in the bankruptcy, will receive interest on this new super senior loan which will have to be paid out before any other creditor gets recovery. The company is able to receive financing so that they can function as a going concern and exit bankruptcy without laying off thousands of people / liquidating
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