Monday, April 27, 2009

This Time It's Different

One of the themes that I've been discussing in my most recent posts relate to how there have been significant changes in the bankruptcy/restructuring process from previous bankruptcy waves.

The Wall Street Journal has a blog called "Bankruptcy Beat" and in this post they present comments made by the co-head of Jefferies’ restructuring group at a Jefferies' conference last Thursday.

One of the changes that he identified is how the "fulcrum security" has moved up in the capital structure. He stated that now it is typically the first lien lenders (generally the bank debt) that are in that position.

In the past the fulcrum was typically in second lien or unsecured debt.

The "fulcrum security" is the security that ends up controlling the company after a bankruptcy.

Wilbur Ross, at the Wharton Restructuring Conference on February 27th, discussed how the fulcrum security, more and more frequently, is going to be the Debtor in Possession loan.

As I mentioned, in my last post, this could be the result in the Dayton Superior bankruptcy (particularly if the DIP is extended by the bondholders, without the liens that they initially requested).

It also seems that Bill Ackman may be pursuing this strategy in the General Growth bankruptcy.

In the markets, it is generally a good idea to revisit your assumptions when people are saying "this time it's different," but, in this case, it really is - at least for now.

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