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Shrinking Timeline for U.S. Bankruptcies is a Boon for Creditors, Report Finds

August 08, 2018, 08:01 AM
Filed Under: Bankruptcy

The time a U.S. company spends in bankruptcy has shrunk considerably, according to a new Fitch Ratings bankruptcy case study report.

"The compressed timeframe is benefitting creditors, minimizing employee and trade union uncertainty, and lessening disruption to operations," said Sharon Bonelli, Senior Director of Leveraged Finance.

"On the flipside, there is a risk that an accelerated valuation or asset sale can be rushed without being fully market tested, adversely affecting claimholders lower in the priority waterfall than the fulcrum security."

An increase in prepacked plans is driving the speed to resolution. Fifty-two percent of the 2017 bankruptcies in the Fitch sample were prepackaged, with a median of two months to resolution, versus 11 for conventional cases.

Many shorter cases had a narrow goal of deleveraging the balance sheet or selling all assets.

Rights offerings for new debt or new common equity are more common in recent bankruptcies. Successful offerings promote a smoother, more rapid path to proposed plan acceptance.

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