RX prep

Question 1

What are leveraged loans?

Answer 1

Loans lower than BBB- Baa3, aka below investment grade -> is high yield
BB+

Question 2

Adjusted EBITDA?

Answer 2

Remove:
1) bad debt expenses,
2) asset write downs,
3) goodwill impairments,
4) legal fees,
5) restructuring fees

Question 3

Secured basket definition?

Answer 3

1general basket -> can raise any type of debt, sometimes have unlimited junior debt
2conditional baskets -> based on ratios for example
3sale lease back basket
4only certain amount of securitization
only specific

Question 4

DIP financing? would other liens the lender has be upgraded?

Answer 4

new money portion of the DIP, roll-up

Question 5

If classes that get nothing can’t vote, how does a UCC work?

Question 6

How do you do a liquidation analysis? where to get specific numbers? is that done by RX bankers?

Answer 6

consultant will do liquidation analysis, appraisal reports to see what’s available,
ie. canada and US assets, $0 and

Question 7

substantive consolidation risk?

Question 8

in a pre-pack, when deciding options for management to incentivize them to stick around, who negotiates the options? the board?

Answer 8

MIP -> management incentive package, all parties involved
gets paid pretty well during restructuring
KEIP (key employee incentive plans)
KERP (key employee retention plans)

Question 9

out of court exchange, you need 90% acceptance, is that headcount or dollar value?

Answer 9

face value for the 90%, can not force them to do anything
driven by credit docs, generally need majority or super majority
stub-notes

Question 10

Big boy letter?

Answer 10

1) party acknowledges they have MNPI
2) waves claims that are related to them having MNPI

Question 11

where can i find more bond math Qs? maybe also waterfall Qs

Question 12

any reasons why out of court vs in-court?

Answer 12

holdout problem
no need to pay interest
automatic stay -> litigation, leases
tort liabilities can put a cap on liabilities via

Question 13

loan vs bonds

Answer 13

loans issued by banks, bonds by institutional investors
loans floating rate and have mandatory amortization rates
bonds bullet repayment schedule
loans -> maintenance covenant heavy
bonds -> negative covenants
bonds sometimes longer maturities

Question 14

YTM

Answer 14

has no credit risk, best case scenario
annual rate of return
would not use if you were a distressed investor, would do expected value of principal

Question 15

Deficiency?

Answer 15

difference between collateral and outstanding obligation

Question 16

fulcrum security

Answer 16

value break, below which holders will not receive a full recovery
whoever aka the most senior security that is impaired
because of this break, they are most the security most likely to receive equity

Question 17

How much DIP financing?

Answer 17

AR and inventory, but also other assets

Question 18

Macaulay duration?

Answer 18

Get PV of each CF, then get weight by PV aka Price, then get weighted time (time (for which you get that CF) * the weight of that CF) and get the average of the weighted times
Weighted average of the time to receive the cash flows from a bond.

Question 19

What happens to NOLs?

Answer 19

they become DTAs, ONLY if the current shareholders or creditors end up owning at least 50% of re-orged firm

Question 20

Extension of debt terms

Answer 20

term loan: 3-8% paydown based on cash the company has, 2-4% interest rate increase
revolver: consent fee is paid, 1% aka 100bps, 1% increased rate

Question 21

Fixed charged coverage ratio? (FCCR)

Answer 21

(EBITDA - Capex - Cash Taxes)/(Cash interest expense + mandatory debt repayments)

Question 22

Rights offering?

Answer 22

Creditors can purchase additional equity at a discount

Question 23

Borrowing base?

Answer 23

ratio: Eligible assets/revolver
is set on issuance, determines how much revolver company can use based on assets underpinning