Creation value concept in distressed valuation: implications and uses?
Is anyone familiar with the "creation value" concept in distressed valuation? Ie. if the current capital structure is 500 senior secured term loan, and 500 of unsecured subordinated notes.
Say you purchase the notes for $0.50 on the dollar. Often it is referred to as creating the enterprise value at 750, ie. the 500 of debt that is senior to you and the 250 that you put in to purchase the subordinated debt.
Anyone familiar with the implications and uses? Any color helpful.
Someone else will explain it better than me, but a creation multiple is the valuation you own a company at after owning the fulcrum security (tranche of debt that gets converted into equity) when the company emerges from restructuring / reorg.
bump
would love info on this topic... bump.
bump can someone pls explain creation multiple math
The implications of this concept are significant for distressed investors and rx professionals. By purchasing distressed debt at a discount, investors can potentially create value for themselves and other stakeholders in the company. This can be achieved through a variety of restructuring strategies, such as negotiating with creditors to reduce debt or extending maturities, selling non-core assets to generate cash, or implementing operational improvements to increase profitability.
i understand this but can you explain how its actually calculated? do you just look at the market price of the perceived fulcrum, assume everything above you gets par'd out, subtract cash and divide by EBITDA giving you the implicit creation multiple in the scenario that the debt you are buying will own equity?? thank you
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