TABLE OF CONTENTS The previous chapter discussed practical steps for identifying potential distressed investment opportunities and then developing an appropriate due diligence program so that, to the greatest extent possible, an investor can have confidence in identifying and properly considering all of the relevant risks. Since many distressed investments are premised on a firm resolving its distress within bankruptcy reorganization, this chapter explores the dynamics involved in the process that can affect investment returns: the "endgame" of the distressed investment.
The discussion will proceed in a roughly chronological fashion. First, the primary participants and their roles in the process will be discussed. Next some of the basic approaches to the chapter 11 process (prepackaged or prenegotiated filings, preplanned asset sales, unplanned filings) are discussed, since the type of case can significantly affect the required investment horizon. After this, some of the dynamics of negotiating the plan of reorganization (plan) are considered. These are discussed in the context of winning bankruptcy court approval of the disclosure statement, as well as confirmation of the plan. Since each reorganization will be shaped by the facts and circumstances of the case, the discussion here is necessarily general considering there are few absolute rules in the process.
As mentioned in the introduction to this book, to the extent distressed investing can be compared to chess, it requires an expansion of the "one-against-one" chess framework to reflect the reality of many different constituencies essentially playing against each other as well as the distressed firm. One of...
