Bankruptcy Is the New M&A
- Bankruptcy Is the New M&A
Nickname for an investment strategy whereby debtholders take over the companies that owe them money rather than receive the interest payments they are due.
In a fascinating Wall Street Journal article, Mike Spector and Jeffrey McCracken assessed the soaring value of “distressed-debt deals – in which creditors use their debt positions to seize ownership of troubled companies”:
In many of these cases, debtholders aren’t concerned about getting monthly payments, but rather using their debt positions to angle for ownership. It’s the equivalent of a bank making a loan to a homeowner with the intent of foreclosing on a delinquent mortgage. Such strategies have been around for years and are known in financial circles as “loan to own” or “vulture” deals. But never have they occurred with such volume and velocity, say bankers and lawyers. …
The deals are changing how Wall Street bankers and lawyers work. These days, M&A lawyers are increasingly collaborating with their firms’ bankruptcy practices and Wall Street restructuring shops. Rather than working with a suitor that wants to buy a company for cash or stock, they now work with groups of creditors who want to convert the debts into ownership of a crippled company. The new cliché among restructuring professionals: Bankruptcy is the new M&A.
According to the WSJ, the value of distressed-debt deals in 2009 has already exceeded $84 billion – more than four times 2008’s level of $20 billion.
Dictionary of unconsidered lexicographical trifles.
2014.
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