Say a company is going through a restructuring and it's determined that the $20mm sub notes receive zero recovery. If I'm looking at a pro-forma balance sheet, how is the elimination of debt accounted for? My problem is that I'm having trouble making the balance sheet balance. Clearly, debt is reduced by $20mm, but what is the offsetting adjustment? Much appreciated and happy holidays.
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Can you please be a little more explicit?
gain on debt reduction of $20 in IS. 40% tax so NI increases by $12. SCF: NI increases by $12 but $20 non-cash gain subtracted so total cash decreases by $8. Liabilities + Equity: Debt down by 20 and equity up by 12 thru retained earnings => decrease of 8 Asset: cash decreases by 8
not sure but did a problem like this one
How did you determine its no recovery? If the case of a structured bankruptcy then they won't balance ...
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