This course begins by covering the key factors that cause companies to become financially distressed. It emphasizes the various early warning signs that lenders must be aware of and the importance of quickly identifying companies that are having problems to limit value destruction and improve recovery rates for lenders. Signs include understanding how and when cash flows become distressed, as well as measuring and assessing liquidity through a downturn. This course discusses the roles of covenants and collateral, including how they can fail to protect lenders. Finally, the course works through the measures that must be taken to resolve financial distress. The course uses a single case study based on a real company. It follows it through three separate phases:
- Early stage financial distress
- Cash crisis
- Restructuring and bankruptcy
At each stage, the participants have to work through the issues the company faces and decide (i) what alternatives are available; and (ii) which are the most appropriate and why.