Private Equity and the Resolution of Financial Distress

2021 ◽  
Author(s):  
Edith S Hotchkiss ◽  
David C Smith ◽  
Per Strömberg
Keyword(s):  
Financial Distress ◽  
Private Equity ◽  
Lower Cost ◽  
Loan Markets ◽  
Control Post

Abstract We examine the role private equity (PE) sponsors play in the resolution of financial distress of portfolio companies. PE-backed firms have higher leverage and default at higher rates than other companies borrowing in leveraged loan markets. But, PE-backed firms restructure more quickly, avoid bankruptcy court more often, and liquidate less often compared to other highly leveraged firms experiencing financial distress. PE owners are also more likely to retain control post-restructuring, often by infusing capital as firms approach distress. While default frequencies are higher among PE-backed firms, PE investors appear to manage financial distress at lower cost compared to other owners.

scholarly journals Is corporate governance of private equity targets more effective for risk mitigation?

2021 ◽  
Author(s):  
Vladimiro Marini ◽  
Massimo Caratelli ◽  
Gian Paolo Stella ◽  
Ilaria Barbaraci
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Financial Distress ◽  
Private Equity ◽  
Risk Mitigation ◽  
Governance Mechanisms ◽  
Active Monitoring ◽  
Industry Expert ◽  
Corporate Governance Mechanisms

AbstractPrivate equity is a source of finance and a governance device characterised by active monitoring through sponsors that intervene in targets’ corporate governance. As sponsors are skilled and motivated acquirors, we investigated whether corporate governance mechanisms mitigate leveraged targets’ risk of financial distress differently compared to non-acquired companies through the lenses of agency theory and resource-based theories. We found that targets and non-acquired companies are not significantly different in terms of corporate governance features, but sponsors are skilled enough to choose corporate governance members to mitigate risk more, especially when boards are smaller, have busier industry expert directors, and mandate execution to more managers. These results can be useful to targets, targets’ investors and lenders, and policymakers.

scholarly journals For-Profit Hospitals Out of Business? Financial Sustainability During the COVID-19 Epidemic Emergency Response

2020 ◽  
Author(s):  
Florien Margareth Kruse ◽  
Patrick P.T. Jeurissen
Keyword(s):  
Emergency Response ◽  
Financial Distress ◽  
Private Equity ◽  
Elective Surgery ◽  
Financial Sustainability ◽  
Policy Makers ◽  
For Profit ◽  
Portfolio Size ◽  
Organisational Factors ◽  
The Impact

This perspective argues that for-profit hospitals will be heavily affected by epidemic crises, including the current coronavirus disease 2019 (COVID-19) outbreak. Policy-makers should be aware that for-profit hospitals in particular are likely to face financial distress. The suspension of all non-urgent elective surgery and the relegation of market-based mechanisms that determines the allocation and compensation of care puts the financial state of these hospitals at serious risk. We identify three organisational factors that determine which hospitals might be most affected (ie, care-portfolio, size and whether it is private equity [PE]-owned). In addition, we analyse contextual factors that could explain the impact of financial distress among for-profit hospitals on the wider healthcare system.

Private Equity and the Resolution of Financial Distress

2011 ◽  
Author(s):  
Per Johan Strömberg ◽  
Edith S. Hotchkiss ◽  
David C. Smith
Keyword(s):  
Financial Distress ◽  
Private Equity

The Restructuring of Danfurn LLC1

2017 ◽  
pp. 1-10
Author(s):  
David C. Smith ◽  
Larry G. Halperin ◽  
Michael Friedman
Keyword(s):  
Capital Structure ◽  
Corporate Finance ◽  
Financial Distress ◽  
Private Equity ◽  
Law School ◽  
Legal Rights ◽  
University Of Virginia ◽  
Case Discussion ◽  
Stakeholder Groups ◽  
The University

This case is taught at the University of Virginia McIntire School of Commerce in the fourth year course, “Corporate Restructuring.” The case is suitable for advanced undergraduates or MBS students that have already completed a course in corporate finance or valuation. The material would fit well in a second Corporate Finance class, particularly if the instructor would like to devote some time to discussing financial distress and restructuring. It could also work well in a business reorganization class at a law school. Danfurn LLC is a U.S. manufacturer and retailer of high-end furniture that is in financial distress following a 2007 LBO and subsequent declines in profitability in the wake of the financial crisis of 2007–08. The nearly 50-year-old company has recently blown through cash flow covenants on its $100 million senior financing facility and is seeking a restructuring of its capital structure that will allow the company to survive. Although Danfurn's lenders are hopeful that a consensual decision can be reached on how to restructure the company without resorting to a bankruptcy filing, filing for bankruptcy or even liquidating the company are very real possibilities. This case is an exercise in negotiating a consensual restructuring of a financially distressed company when stakeholders have varied incentives, legal rights, potential remedies, and interests in how the company will be managed going forward. The case discussion works best if students are divided into groups representing the different stakeholder groups—the senior lender, mezzanine lender, board, private equity owner, and founder interests—and are asked to think about how best to maximize their positions while recognizing the costs of failing to reach a negotiated outcome.

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