Financial Experts in Chapter 11 Bankruptcies: Unique Situations from Common Assignments

By Allyn Needham, Shipp, Needham & Durham, LLC

needhamWhen disagreements arise in Chapter 11 bankruptcies, debtor and/or creditors’ counsel may seek financial experts to provide information relative to their positions. While engagements of economic experts may cover a broad spectrum of analyses, these engagements generally fall into two areas: determining the appropriate interest rate for the repayment of a secured claim and the liquidation and/or fair market value of certain assets or the bankrupt business as a whole.

The assessment of interest rates and appraising the value of a business are assignments not limited to bankruptcy work alone. Most financial experts are familiar with the methods required to perform these tasks. However, even in the application of these basic analyses, Chapter 11 bankruptcy may present unusual assignments.

This article discusses two unique situations that may arise from common assignments. The first is the application of the cramdown interest rate model when a creditor makes an 1111(b) election. An 1111(b) election allows an under secured creditor to be paid its total allowed claim (both secured and unsecured). This impacts the interest rate and its application toward retirement of the claim. The second considers the concept that the “highest bidder may not be the best bidder” when selling a bankrupt business. The best bid may not be the highest bid due to differing prices, terms, contingencies and impact on the local economy (e.g. closing a business or location) in the competing bids.

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