Troubled Debt Restructuring Case Study

4.       Interest expense will reflect that there is now $12 million in long-term debt in the form of bonds payable at 10.75%. Ten million dollars of new debt is being added to $2 million of old debt.

When considering bankruptcy, pre-bankruptcy planning is one of the most important steps for Harv and Lois. In a Chapter 7 bankruptcy, the TIB will take all non-exempt valuable property that he can sell to distribute the money to the creditors. The main idea behind the Chapter 7 bankruptcy is ‘liquidation’. However, Harv and

Bankruptcy discussions started immediately and centered on the prospect of Chapter 11 bankruptcy (Start Fresh Today 2012), commonly called restructuring. It was generally used to provide a window of opportunity for a corporation to renegotiate contracts, sell assets or component businesses for cash, obtain debt forgiveness, or otherwise reform itself as a viable business enterprise. On April 30, 2009, Chrysler filed for Chapter 11 bankruptcy after talks with lenders broke down (Start Fresh Today 2012). On the May 14, 2009 Chrysler announced it was to close 25% of its US dealerships as part of its restructuring process.

The nonrecourse debt being $4 mm, which is greater than the ship’s fair value of $3 mm, will be extinguished because the lender can only seize the collateral – which is the cruise ship.

In accordance ASC 470-50-40-21b Modifications to or exchanges of line-of-credit or revolving-debt arrangements resulting in either a new line-of-credit or revolving-debt arrangement or resulting in a traditional term-debt arrangement shall be evaluated in the following manner:“ If the borrowing capacity of the new arrangement is greater than or equal to the borrowing capacity of the old arrangement, then any unamortized deferred costs, any fees paid to the creditor, and any third-party costs incurred shall be associated with the new arrangement (that is, deferred and amortized over the term of the new arrangement.”

Another important factor necessitating consideration is the effect the default will have on the nonrecourse debt. In our research we concluded the impact from the default does not influence the UFCF, the fair value, or the carrying value. According to FAS 144, the loss from impairment and the gain from the extinguishment of debt are two separate and distinct transactions. The Board continues to explain “the recognition of an impairment loss should be based on the measurement of the asset at its fair value and that the existence of nonrecourse debt should not influence that measurement.” Thus, the nonrecourse debt does not impact Smooth Sailing’s impairment loss calculations.

b. Other indications of financial difficulties (default on loan or similar agreements, arrearages in dividends, denial of usual trade credit from suppliers, restructuring of debt, noncompliance with statutory capital requirements, the need to seek new sources or methods of financing, or the need to dispose of substantial assets).

Bankruptcy is the legal process by which the assets of a debtor are sold to pay off creditors so that the debtor can make a fresh start financially. Chapter 11 of the Bankruptcy Code provides a method for businesses to reorganize their financial affairs and still remain in business. On March 10, 2017, Gander Mountain filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. After months of in-depth review of the company's financial and strategic options, the company conclude that it did not have the financial capacity at time to reset its operations to fully implement a new lower cost model. Consequently, Chapter 11 bankruptcy was the best option, allowing the company to preserve its value and position itself

• Coleco is dependent on debt through years (also successful ones) • The company has a huge amount of total liabilities (in 1987 about $ 620 mln) • No resources to pay debts (Negative equity, Assets are generally composed of Accounts receivables) • Company by the moment already does not comply with the creditors requirements

If all revenue is recognized when stamps are sold, an accrual of the cost of the future premium redemptions would be necessary. In such a case, when stamp redemptions and related premium issuances occurred, the costs of the premiums would be charged to the accrued liability account.

A restructuring of debt constitutes a troubled debt restructuring… if the creditor for economic or legal

The asset, Deferred Subscriber Acquisition Costs was amortized, beginning the month after such costs were incurred,

The company currently faces serious financial challenges. It was struggling with declining sales and increasing costs. Since 2004, revenues had fallen by more than 40% while costs especially for employees health insurance, maintenance, and utilities climbed. Credits and loans had been borrowed to

Based on this advice, Daren transfers the business assets (fair market value $1.5 million, adjusted basis $450,000) along with the associated debt ($750,000) to the newly formed corporation. As far as he is concerned, nothing has really changed in his relationship with the creditor bank: he still feels personally obligated to pay off the debt. In fact, before the debt is assigned to the newly formed corporation, the bank insists that Daren remain secondarily responsible for its payment (i.e., he guaranteed the debt). Even though the proprietorship’s liabilities transferred exceed the basis of the assets transferred, Daren regards the transaction as tax-free because:

Distressed debt sells at a very low percentage of par value, for example 30 cents on the dollar. This percentage indicates that you can buy debt that is worth 1$ at maturity for 30 cents, which seems very attractive but there is of course a reason that it is only worth 30 cents on the dollar. If the distressed company emerges as