Where the value breaks and negotiating strength

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Where the value breaks and negotiating strength
  • Coronavirus (COVID-19)
  • Where does the value break?
  • Impact of size of valuation
  • Where the value breaks
  • Other factors affecting negotiating strength
  • Factors affecting motivation and deal structure

Where the value breaks and negotiating strength

Coronavirus (COVID-19)

This content is affected by the proposed changes to UK insolvency laws as a result of the coronavirus (COVID-19) pandemic. For further details, see Practice Note: Reform of UK insolvency laws. For related news, guidance and other coronavirus resources to assist practitioners working on restructuring and insolvency matters, see: Coronavirus (COVID-19)—Restructuring & Insolvency—overview.

Where does the value break?

Early in the restructuring negotiations, the parties will obtain valuations of the company to determine where value breaks (see Practice Note: Types of valuation for R&I lawyers). The valuation determines:

  1. which tranche(s) of debt is impaired

  2. which creditors are clearly out of the money and so have no seat at the restructuring table

  3. which creditors are near the value break who may dispute the valuation

  4. the likely split of equity or debt instruments in the company post-restructuring

  5. who will be asked to contribute more money in return for a stake in the company post-restructuring

  6. which creditors might want to buy out the senior creditors to avoid an enforcement and resultant impairment of their debt

Creditors in the tranche where value breaks will expect to receive a greater share of the equity in the restructured entity as recompense for their impairment and as an incentive for them to approve a restructuring agreement (see Precedent: Restructuring Agreement). The valuation will determine which creditors have

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