Corporate Bankruptcy: Significant Issues for 2014 and Beyond LIVE Webcast

Speaker Firms and Organization:
BDO Consulting
David E. Berliner
Partner
Mesirow Financial Consulting, LLC
Stephen B. Darr
Senior Managing Director
Gordian Group LLC
Peter Kaufman
President and Head of Restructuring and Distressed M&A
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Presented By:
March 14, 2014
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Partner Firms:

March 14, 2014
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Partner Firms:
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BDO Consulting provides litigation & dispute
resolution, investigations & compliance, business
restructuring, valuation, and risk advisory services
to major corporations, law firms, insurance
companies, financial service entities, and
government organizations. Our highly experienced
and well-credentialed professionals draw upon a
range of industry knowledge and completed
consulting engagements throughout the U.S. and
internationally to provide clients with unparalleled
service. BDO Consulting leverages the global
industry and accounting knowledge of the BDO
international network, providing rapid, strategic
advice to assist our clients with dispute resolution,
risk management, financial solvency and
regulatory compliance issues.
Mesirow Financial Consulting, LLC is a full-service
financial and operational advisory consulting firm.
We provide corporate recovery, litigation,
investigative and intelligence services, valuation,
interim management, distressed M&A and capital
raising, due diligence and technology advisory
services on a global basis.
Gordian Group, LLC is the leading investment
bank in the country specializing in complex and/or
stressed/distressed financial advisory work. We
are a registered broker-dealer and have been in
business since 1988. Gordian is ranked in the top
10 firms by The Deal in its League Tables, and as
individual investment bankers, Peter Kaufman and
Henry Owsley have been ranked as high as
number 1 recently in The Deal's League Tables.
Our lead partners are also the authors of the
definitive work in the field, Distressed Investment
Banking: To the Abyss and Back, Beard
Publications, 2005.

Brief Speaker Bios:
David E. Berliner
David Berliner has more than 25 years of experience in matters involving business restructurings, bankruptcy and insolvency, forensic
investigations, bankruptcy litigation, transaction due diligence, accounting and auditing.
Mr. Berliner has been involved in many bankruptcies representing unsecured creditors, debtors, and secured lenders. He has
significant experience in bankruptcy and restructuring matters involving the retail, alternative energy, media, manufacturing,
distribution and service industries.
Mr. Berliner has provided testimony at depositions and in bankruptcy court on solvency issues and other bankruptcy issues. He has
also assisted attorneys in analyzing financial documents, developing questions for depositions and trial testimony, evaluating
testimony of witnesses, and preparing and responding to interrogatories.
March 14, 2014
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Stephen B. Darr
Mr. Darr has over 30 years of experience providing accounting, auditing and financial consulting services to business organizations,
many of which are experiencing significant financial and operating difficulties. His experience also includes providing litigation support
and expert testimony in bankruptcy and non-bankruptcy matters involving preference and fraudulent conveyance actions, professional
liability claims, patent infringement, royalty and intellectual property disputes, construction claims, wrongful employment discharge and
lender liability and business tort claims. He has testified in U.S. Bankruptcy Court proceedings in Delaware, New York, Pennsylvania,
Massachusetts, Rhode Island, Connecticut, Maine, New Hampshire and Vermont on a wide range of bankruptcy matters.
Mr. Darr is a CPA. CIRA and CDBV; He also holds FINRA Series 7, 24 and 79 registrations.

Brief Speaker Bios:
Peter Kaufman
Peter Kaufman is President of Gordian Group, the leading investment bank focused solely on advising corporations, private equity
firms and government agencies in distressed situations. He heads the firm's Restructuring and Distressed M&A practice. Peter has
been ranked the #1 investment banker nationally in financial restructuring. He is co-author of the definitive book on distressed
investment banking, Distressed Investment Banking: To The Abyss and Back, Beard Books, 2005
March 14, 2014
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► For more information about the speakers, you can visit: http://theknowledgegroup.org/event_name/corporate-bankruptcy-significant-issues-for-2014-and-beyond-live-webcast/

In a volatile and unpredictable economic environment, companies and industry watchers must be in the know with respect to the latest
trends and issues in corporate bankruptcy. The Knowledge Group is assembling a panel of practitioners and thought leaders to offer
insights and key takeaways. In a two-hour live webcast, speakers will address:
- Bankruptcy System: An Overview
- Recent Bankruptcy Cases and Lessons Learned
- Bankruptcy and Restructuring Litigation
- The Timeline For Bankruptcy Filings and Steps Involved
- Alternatives to Bankruptcy
- Secured claims and claim priorities
- Bankruptcy and Unexpired Leases, Executory, and Other Contracts
- Preference and Fraudulent Transfer Avoiding Powers and How Prosecute and Defend Them
- The Chapter 11 Plan: Drafting, Solicitation and Confirmation
- Procedural Requirements For Debtors, Creditors and Their Attorneys In Bankruptcy
- Bankruptcy Professionals and The Requirements For Their Employment and Compensation
- The Company After Bankruptcy
- Up-to-the-Minute Regulatory Updates
- Private equity and insolvent portfolio companies
- Healthcare in bankruptcy
This course is a must attend for attorneys who want to learn or re-learn how to counsel their clients on corporate bankruptcy
issues in the most effective manner. March 14, 2014
9

Featured Speakers:
March 14, 2014
10
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting
SEGMENT 2:
Stephen B. Darr
SEGMENT 3:
Peter Kaufman
President and Head of Restructuring
and Distressed M&A
Gordian Group LLC

Introduction
David Berliner has more than 25 years of experience in matters involving business restructurings, bankruptcy and
insolvency, forensic investigations, bankruptcy litigation, transaction due diligence, accounting and auditing.
Mr. Berliner has been involved in many bankruptcies representing unsecured creditors, debtors, and secured lenders. He
has significant experience in bankruptcy and restructuring matters involving the retail, alternative energy, media,
manufacturing, distribution and service industries.
Mr. Berliner has provided testimony at depositions and in bankruptcy court on solvency issues and other bankruptcy issues.
He has also assisted attorneys in analyzing financial documents, developing questions for depositions and trial testimony,
evaluating testimony of witnesses, and preparing and responding to interrogatories.
Mr. Berliner is a member of BDO’s Retail and Consumer Products practice and has written articles and been quoted in
publications on both retail industry and bankruptcy & restructuring issues, and spoken at various educational conferences.
March 14, 2014
11
SEGMENT 1:
Corey Parker
Senior Consultant
Baker Tilly Virchow Krause, LLP
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Corporate Bankruptcy – March 14, 2014 Financial Advisory
David Berliner, Partner BDO Consulting – Discussion Topics
•Bankruptcy System – An Overview
•Bankruptcy Professionals & Requirements for Employment and Compensation
•Preferences and Fraudulent Transfers
•Bankruptcy & Restructuring Litigation
•Secured Claims and Claim Priorities
•Unexpired Leases & Executory Contracts
March 14, 2014
12
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Corporate Bankruptcy – March 14, 2014
Stephen Darr, Senior Managing Director, Mesirow Financial Consulting – Discussion Topics
•Alternatives to Bankruptcy
•Timeline for Bankruptcy Filings and Steps Involved
•Chapter 11 Plan: Drafting, Solicitation and Confirmation
Peter Kaufman, President Gordian Group – Discussion Topics
•Private Equity & Insolvent Portfolio Companies
•Healthcare in Bankruptcy
•Section 363 Asset Sale – Fisker Automotive case
March 14, 2014
13
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Bankruptcy System: An Overview
• Bankruptcy law in the U.S. was codified under federal law in 1978.
- Prior to that, bankruptcy law was a mix of federal and state laws.
- Federal bankruptcy law now preempts any conflicting state laws.
• Federal bankruptcy law affects the rights of a debtor and all creditors of the debtor
• Generally, a debtor has 3 options available in seeking bankruptcy protection for a business:
- Chapter 7 – Liquidation
- Chapter 11 – Reorganization (can also be used for liquidation)
- Chapter 15 - Governs legal process for cross-border international bankruptcies
• Generally, a debtor can file for bankruptcy by filing a voluntary bankruptcy petition with the Bankruptcy
Court.
March 14, 2014
14
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Bankruptcy Code & Amendments
• Bankruptcy Code was effective October 1, 1979.
• There have been 4 major amendments since
• 1984
• 1993
• 1997
• 2005
• 2005 Act – Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”)
• Amendment passed primarily to reduce the perceived abuses by consumers and some business
issues were added to reduce the time that a business can be in bankruptcy
• Limit time debtor has to decide whether to assume or reject leases
• Limit time debtor has exclusive right to develop a plan
• Also included provision that goods shipped within 20 days of bankruptcy filing are now
administrative expenses
March 14, 2014
15
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Bankruptcy Courts & US Trustee Structure
• Bankruptcy Courts
• There are over 300 bankruptcy judges in U.S.
• Bankruptcy Courts receive cases from Federal District Court
• Bankruptcy Judges address core proceedings, which are common issues that arise in bankruptcy
cases
• US Trustee Structure
• 21 Regions
• US Trustee is appointed for each region
March 14, 2014
16
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Chapter 7 vs. Chapter 11
• Chapter 7 (Liquidation) – provides for the orderly liquidation of the assets of the debtor.
• The assets are generally promptly sold and the proceeds are distributed to creditors.
• Can also liquidate using Chapter 11 or an Assignment for the Benefit of Creditors (“ABC”) under
State Law
• ABC: Debtor voluntarily transfers title to assets to an assignee who liquidates them and
distributes the proceeds among the creditors
• Chapter 11 (Reorganization) – allows for reorganization of the business and a “fresh start”
• Debtor retains control of business as a Debtor-In-Possession (DIP)
• Assets and future income of the debtor are available to pay creditors under a “Plan of
Reorganization” which permits the debtor to remain in possession of its assets and to
“reorganize” its business, most likely with reduced liabilities.
• Business attempts to continue operating without the full amount of debt that existed prior to the
bankruptcy filing.
March 14, 2014
17
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Bankruptcy Professionals and The Requirements
For Their Employment and Compensation
Retention of Professionals
•Debtors, creditors committee and secured creditor can retain professionals to assist them with the
requirements of the bankruptcy process, with Court approval.
• Professionals include attorneys, financial advisors, investment bankers, accountants, etc.
•In Chapter 11 cases and in many out-of-court settlements, an unsecured creditors’ committee will be
appointed by the US Trustee.
•Professionals must file a retention application with the Court
• Must review and disclose all potential conflicts of interest – professional cannot have an interest
adverse to the Debtor (can’t be a creditor of the Debtor).
• Describe experience and expertise of the firm to be employed, why it is necessary to be
retained, services to be performed and terms of compensation.
March 14, 2014
18
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Bankruptcy Professionals and The Requirements
For Their Employment and Compensation
Compensation of Professionals:
•The compensation of all of the above professionals is generally paid by the debtor.
• Professional fees are considered administrative expenses.
• Typically professionals get some carve-out of the lender’s collateral for a portion of their fees
(downside protection).
• Full disclosure is required for all payments to professionals.
• Only reasonable and necessary expenses will be reimbursed
• Professionals must file fee applications with the Bankruptcy Court and have their fees approved.
• Proper notice is required; not less than 20 days prior to hearing
• New US Trustee Fee Guidelines -- On June 11, 2013, the US Trustee’s office issued new
guidelines for the payment of attorneys’ fees and expenses in chapter 11 cases with $50 million
or greater in assets or liabilities.
March 14, 2014
19
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

What is a preference § 547(b)?
• Payments made by a bankrupt company to suppliers within 90 days (1 year if an insider) prior to the
bankruptcy filing can be considered “preferential.”
• If deemed preferential, payments received by the supplier may have to be returned to the bankrupt
company.
• Rational for Why Preferential Payments Must Be Returned
• Rationale is to discourage suppliers and vendors from pursuing overly aggressive collection
efforts.
• The law governing preference payments also allows suppliers who follow the rules to continue to
do business with a distressed company in the hope that a bankruptcy filing can be avoided
without the fear of having to return payments received prior to a filing.
• Many companies do not understand their exposure to preferences and the exposure can be
substantial!
• Companies who shorten credit terms or impose other restrictions often just make the preference
problem worse.
March 14, 2014
20
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Preferences
• 5 elements must be met for a transfer to be characterized as an avoidable preference:
- The transfer must be made to or for the benefit of a creditor.
- The transfer must be made for, or on account of, an antecedent debt owed by the debtor.
- The transfer must be made while the debtor is insolvent (discussed further below).
- The transfer must have been made within 90 days prior to bankruptcy filing (1 year for insiders).
- The transfer enables the creditor to receive more than it would receive in a liquidation under Chapter 7.
• In general, any payment made to an unsecured creditor that would not receive 100% in a liquidation may be
considered a potential preference
• Insolvency is Presumed if the Transfer is made within 90 Days prior to bankruptcy
• This presumption does not apply to insiders
• Although a debtor is presumed insolvent during the preference period, if the creditor challenges, the debtor
has the ultimate burden of proof
• Prepayments are not preferences
• Time to recover preference payments – 2 years from bankruptcy filing
March 14, 2014
21
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Major Defenses to a Preference
• Contemporaneous Exchange [Section 547(c)(1)]
• If the parties intended that the exchange of value for payment was to be contemporaneous, the
payment is not considered a preference.
• Debtor must receive new (and comparable) value in exchange for the transfer.
• Ordinary Court of Business [Section 547(c)(2)]
• Whether the payment was made in the ordinary course can be determined in one of two ways
(only one test needs to apply):
• Subjective Test
• Objective Test
• Security Interest Securing New Value [Section 547(c)(3)]
• Subsequent New Value [Section 547(c)(4)]
• New value is generally defined as new goods or services provided to a company.
• The new credit must be unsecured.
• Transfer for business debt less than $6,225 within the 90-day period [Section 547(c)(9)]
March 14, 2014
22
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Fraudulent Transfers
• Fraudulent transfer law is a remedy provided to creditors to unwind or “avoid” a debtor’s improper transfer of
property.
• Action in bankruptcy court may be under state law (look back period may be 4-6 years) or bankruptcy code
(Section 548), for transfers made within 2 years of filing.
• There are two types of fraudulent transfers:
• “Actual” fraudulent transfers, which are those transfers made by the debtor with intent to hinder, delay, or
defraud the debtor’s creditors.
• “Constructive” fraudulent transfers, which are transfers for less than reasonably equivalent value
(deemed to be fraudulent even though there may not be actual intent to defraud); debtor must be
insolvent
- Reasonable Equivalent Value – factors that should be considered:
- No precise formula – courts must determine issue based on facts & circumstances
- Key is whether the transaction provided commercial value reasonably equivalent to the
commercial value of the assets transferred.
March 14, 2014
23
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Bankruptcy & Restructuring Litigation
• Debtor in Possession takes possession of all property of the Estate by:
• Avoiding liens and preferences
• Attacking fraudulent transfers
• Using other powers granted under the Code
• Allows avoidance of any liens that were not properly filed
• Reclamation
• Goods received within 45 days of petition date
• Request must be made within 20 days after filing
• Goods must not be sold or used in the manufacture of other goods.
• Insolvency
• Defined as Total Liabilities exceeding the entity’s property at fair valuation.
• Fair Value, in the context of a going concern, is determined by the fair price of the debtors’ assets that could be
obtained if sold in a prudent manner within a reasonable period of time
- Debtor was insolvent or became insolvent as a result of the transfer
- Debtor was engaged in business with unreasonably small capital
- Debtor incur debts beyond its ability to repay
March 14, 2014
24
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Secured Claims
• Secured Claims -- Creditors whose claims are secured by the assets of the debtor.
• DIP lenders often require a super priority lien over existing secured creditors.‐
• Often the DIP lender will allow for "carve outs" for certain administrative payments.
• Allowed secured claim is equal to the value of the collateral in which the debtor has an interest.
• A deficiency claim (general unsecured claim) arises when the value of a secured lender's collateral assets do not
sufficiently cover the secured claim amount
• Adequate Protection – unless surrendered to the creditor, a debtor must protect the value of each secured
creditor’s interest in the debtor’s property.
• To the extent that value is diminished while the creditor is prevented from foreclosing on the property due to
the automatic stay, the creditor may be entitled to cash payments, additional liens or additional collateral as
compensation or adequate protection
• Two ways to leave a claim unimpaired
• Do not alter the claim (interest and principal payments are made during the chapter 11)
• If claim is altered, cure the defaults
• Reinstate maturity of the claim
• Compensate holder of claim for damages
March 14, 2014
25
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Claim Priorities
• Secured Claims -- usually rank ahead of administrative claims
• Section 507 provides that the following claims have priority:
• Administrative expenses – the actual, necessary costs and expenses of preserving the estate
• Professional fees
• Claims for goods shipped or services provided within 20 days of the filing (Section 503(b)(9)
claims)
• Priority General Unsecured Claims -- Must be paid in full before claims of lower priority or general
unsecured claims may receive any distribution.
• Wages (includes vacation, severance, etc.) up to cap of $12,725
• Contributions to employee benefit plans
• Governmental units (income tax due less than 3 years prior to petition date)
• All Other General Unsecured Claims
March 14, 2014
26
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Claims - Other
• Creditors may file a proof of claim to serve notice that the creditor has a claim against the estate.
• Claims bar date is set by the Court
• Proof of claim may be filed at any time prior to the bar date.
• Proof of claim is valid and entitled to payment unless a party in interest objects (claimant has the
burden of proving the validity of the claim)
• Disallowed Claims
• Claims not enforceable (other than contingent or unliquidated)
March 14, 2014
27
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Unexpired Leases, Executory, and Other Contracts
• A key motivation for certain debtors to file chapter 11 is the protection of the automatic stay as well
as the ability to reject certain unfavorable prepetition leases and other executory contracts.
• An executory contract is a binding legal contract in which continuing obligations exist on both
sides of the contract
• Debtor has 3 options regarding unexpired leases or executory contracts
• Reject (reject further obligations under the contract)
• Assume and retain
• Assume and assign
• If the debtor decides to reject an executory contract or unexpired lease, this is considered a
prepetition breach and the creditor is entitled to remedies for the breach (treated as a pre-petition
general unsecured claim).
March 14, 2014
28
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Unexpired Leases, Executory, and Other Contracts
• Rejection of real property leases - damages are limited
• One year’s rent or
• 15% of the remaining terms of the lease (not to exceed 3 years’ rent)
• Plus prepetition claims for unpaid rent
• To assume executory contract or unexpired lease, the debtor must:
• Cure all defaults
• Compensate for actual monetary losses
• Provide adequate assurance of future performance
• Prior to BAPCPA, the deadline for assumption or rejection was 60 days, but was extended indefinitely
in practice.
March 14, 2014
29
SEGMENT 1:
Corey Parker
Senior Consultant
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting

Introduction
Mr. Darr has over 30 years of experience providing accounting, auditing and financial consulting services to business
organizations, many of which are experiencing significant financial and operating difficulties. His experience also includes
providing litigation support and expert testimony in bankruptcy and non-bankruptcy matters involving preference and
fraudulent conveyance actions, professional liability claims, patent infringement, royalty and intellectual property disputes,
construction claims, wrongful employment discharge and lender liability and business tort claims. He has testified in U.S.
Bankruptcy Court proceedings in Delaware, New York, Pennsylvania, Massachusetts, Rhode Island, Connecticut, Maine,
New Hampshire and Vermont on a wide range of bankruptcy matters.
Mr. Darr is a CPA. CIRA and CDBV; He also holds FINRA Series 7, 24 and 79 registrations.
March 14, 2014
30
SEGMENT 2:
Reshma Patel - Jackson
Manager
SEGMENT 2:
Stephen B. Darr

Emerging from Reorganization
 Three ways to emerge
– Dismissal
– Conversion to Chapter 7
– Confirmation of a Plan or
 Reorganization
 Liquidation
March 14, 2014
31
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Requirements for confirmation of a Plan
 Plan
 Disclosure Statement
 Vote by impaired creditor classes
 Acceptance by at least one impaired class
 Compliance with the “Absolute Priority” Rule
 Confirmation by the Court
March 14, 2014
32
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Plan Requirements
 Classify all claims and interests
 Specify any class that is not impaired
 Describe the treatment to be accorded any impaired class
 Treat every claim or interest within a particular class identically
 Establish adequate methods to implement plan
 Include a provision prohibiting issuance of nonvoting stock
 Provide for selection of officers and directors in a manner consistent with interests of creditors and
equity interests
March 14, 2014
33
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Disclosure Statement Requirements
 Provide adequate information, including:
– Plan approval process
– Summary of management
– Summary of Plan provisions
– Financial information and projections
– Reorganization value
– Alternative to Plan (liquidation analysis)
– Special risk factors
– Be approved by the Court prior to soliciting votes
March 14, 2014
34
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Creditor Acceptance
 Only impaired classes entitled to vote
 At least one class must vote to accept Plan
 Of the creditors actually voting
– Two-thirds of the dollars must vote “yes”
– One-half + 1 of the number must vote “yes
 Dissenting classes may be overridden if the Court finds that:
– For secured claims
 Secured claimants retain liens securing claims and receive deferred cash payments totaling the
present value of allowed claims
 Indubitably equivalent value
– For unsecured claims
– No holder of a junior claim or interest receives any recovery (Absolute priority rule)
March 14, 2014
35
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Confirmation by the Court
 Court must “confirm” that requirements have been met, including :
– Compliance with applicable provisions of Title 11
– Proposal made in “Good Faith”
– Disclosure of payments
– Disclosure of officers
– Approval of regulatory rates, if necessary
– Adherence to “Best interests of Creditors’” test
– Provision made for the treatment of “priority claims”
– Acceptance by at least one class of non-insider impaired claims
– Feasibility of Plan
– Payment of U.S. Trustee fees
– Provision for payment of retiree benefits as required by Section 1114 of the Bankruptcy Code
March 14, 2014
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SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Disadvantages of Chapter 11
 Chapter 11 is not business as usual
– Expensive
– Broad exposure of strategic and operational plans and financial results
– Intense scrutiny by the Court, US Trustee and Creditors Committee
 Time spent
– Court hearings
– Creditor meetings
– Reassuring all parties in interest
 Reporting Requirements
– Bankruptcy Schedules
– Statements of Financial Affairs
– Monthly operating reports
– Justification and Court authorization of any “out-of-the ordinary course of business” decisions
March 14, 2014
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SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Exclusive Period
 Period in which only the debtor may negotiate the terms of or file a plan
– Plan must be filed with the Court before 120 days after the commencement of the case
– Plan must be accepted by creditors within 180 after the commencement of the case
March 14, 2014
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SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Exclusive Period
 Exclusive Period may be reduced or extended by the Court, but not beyond 18 months for filing a plan
and 20 months for acceptance
 Exclusivity Period terminates if either
– The debtor fails to comply with the above time requirements
– A trustee is appointed
– If the Exclusive Period terminates, then any party in interest may file a Plan, including:
 debtor
 trustee
 creditors’ committee
 equity security holders’ committee
 a creditor
 an equity security holder
 any indenture trustee
March 14, 2014
39
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

Alternatives to Chapter 11
 Key feature of U.S. Bankruptcy law is that it is generally the only procedure to force a general
adjustment (or discharge) of liabilities
 Alternatives require some level of cooperation from creditors
 Alternatives include
– Out of Court Workout
– Composition of Creditors
– State court receivership
– “Friendly Foreclosure” under the Uniform Commercial Code
– Assignment for the benefit of creditors
March 14, 2014
40
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

– Out-of-Court Workout
 Substantially more common than Chapter 11 proceedings
 Generally involves a small number of creditors and companies in the earlier stages of financial
distress
 Generally involves extension of time to repay creditors in full
– Composition of Creditors
 Similar to but more formal version of Out-of-Court Workout
 Generally used when larger number of creditors
 Usually includes
– A formal announcement to creditors of the proceedings
– A meeting of creditors
– A Composition Plan
– A Composition Disclosure Statement
– Solicitation of creditor assents to the proposed repayment terms
March 14, 2014
41
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

March 14, 2014
42
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

– “Friendly Foreclosure” under the Uniform Commercial Code
 Can be used to transfer an operating business
 Buyer generally found for the Company’s assets
 Company cooperates with the lender’s foreclosure sale
 Assets immediately transferred to the buyer
 Used where
– Company cannot survive the time necessary for a chapter 11 “363” sale.
– No significant buyer interest
 Only feasible if secured lender is under-collateralized
March 14, 2014
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SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

– State law equivalent of Chapter 7
 Trustee = Assignee
 May be significant differences fro the Bankruptcy Code, such as
– Ability to recover preferences and fraudulent transfers
– No automatic stay
– Priority amounts may be different
– No 503(b)(9) claims
– No upper limit on landlord’s claim for breach of the lease.
– No ability to sell free of liens and encumbrances
 May or may not require Court filings
March 14, 2014
44
SEGMENT 2:
Manager
SEGMENT 2:
Stephen B. Darr

March 14, 2014
45
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Introduction
Peter Kaufman is President of Gordian Group, the leading investment bank focused solely on advising corporations, private
equity firms and government agencies in distressed situations. He heads the firm's Restructuring and Distressed M&A
practice. Peter has been ranked the #1 investment banker nationally in financial restructuring. He is co-author of the
definitive book on distressed investment banking, Distressed Investment Banking: To The Abyss and Back, Beard Books,
2005
March 14, 2014
48
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Private Equity and Insolvent Portfolio Companies
March 14, 2014
49
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Private Equity - Maximizing Value in Distressed Situations
 Optionality and creating options is critical – there are many options for a private equity firm to consider:
 Firms can wait for the portfolio company to grow back into its capital structure;
 Firms can turn over the keys to creditors (unlikely);
 Firms can engineer a financial restructuring, which is where they can likely get the most value – particularly if they
receive creative, zealous and unconflicted investment banking advice – but will also likely upset the creditors.
 Key questions and factors to consider:
 What are views on valuation and debt capacity?
 Will the private equity firm (or others involved) put up new money? This is a tool for success, and without new
money, firms will need to be very creative.
 Is the private equity firm willing to upset creditors? This is especially important if they are not willing to put up
new money.
 What are the weaknesses that can be exploited in the credit documents underlying the existing capital structure?
 Does the private equity firm have any non-cash assets or value that it brings to the table? For example, does it
have experience managing or overseeing a particular business that can help the portfolio company and that
creditors may see value in?
 What is the range of outcomes for the other parties at the table in the event of a Chapter 11?
March 14, 2014
50
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Private Equity - Maximizing Value in Distressed Situations (continued)
 Although it is cliché to call current circumstances a “perfect storm,” the combination of economic
conditions and legal precedent creates unique opportunities to not only protect downside – but also
maximize value and enhance returns – of portfolio companies:
 Significant debt maturities in the next few years;
 Volatility and lack of certainty as to accessibility of capital markets;
 Increased prevalence / role of CLOs and traditional senior lenders (in part as a result of the
movement of the hinge class higher up in the capital structure);
 Lessened concern over social issues;
 Short term memories of bank workout groups / separation from deal origination teams.
 Gordian is seeing a lot of private equity firms with portfolio companies that have debt maturities that
are not being “amended and extended.”
 Hedge funds and private equity firms are playing a very creative role in being part of a solution.
March 14, 2014
51
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Weapons Available for Portfolio Companies in Distress
 Control (if investment has provided explicit or implicit control and/or influence)
 Play upon social issues of others involved (e.g., threat of uncontrolled bankruptcy filing).
 Selling the Company with a pre-negotiated sharing of proceeds.
 Potential threat of taking “credit bid” club away from secured lenders
 Option Value
 Distressed equity value is a function of time and volatility.
 Potential paths to meaningful recoveries for junior constituents:
 Structuring a reorganization where equity (or junior debt) receives warrants that kick in at or near where more senior constituencies reach targeted
recoveries;
 Valuation fight: demonstrate enterprise value is such that you are the hinge class (or that equity has value in excess of debt when holding heavily
discounted debt or equity);
 Play for time;
 In that situation, a pre-packaged plan with 60% o f the lender group was negotiated that provided an additional three years of financing
with modest equity dilution;
 A supportive third-party hedge fund acquired sufficient debt on the secondary market to reach consent with 2/3 in amount, which in turn
has provided an opportunity to use creative and aggressive tactics to try to get unanimous support of the lender group to effect a
restructuring outside bankruptcy;
 “Ugly Duckling” strategy;
March 14, 2014
52
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Weapons Available for Portfolio Companies in Distress (continued)
 New Money
 A sprinkling of new money can buy or protect a substantial amount of equity and go a long way
towards reaching a consensual deal.
 In situations where existing lenders will not step up to the plate and the Company needs liquidity
– whether to fund operations or effect a restructuring.
 Solution capital:
 Provide DIP financing, either swapping these claims for equity upon exit or as a bridge
to a sale while acting as stalking horse;
March 14, 2014
53
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Healthcare & Distress
March 14, 2014
54
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Healthcare & Distress - The Big Issue
 The healthcare industry in the United States is undergoing drastic changes that have been part of the
landscape before but have been drastically accelerated by the passing of the Affordable Care Act.
 Today, many healthcare providers feel stuck, not knowing how best to transition from the old fee-for-
service business models to the new, value-based delivery methods that place more emphasis on
primary care, chronic disease management and population health, and less emphasis on ER and
short-stays. The reason lies in the following factors:
 The configuration, scope and size of the old real estate assets are not aligned with the promoted,
new models of healthcare.
 The large amounts of debt are secured by the real estate assets that no longer support maximize
the return under the new revenue models.
 There is no clear path to how to make the transition from the “old” to the “new” while supporting
the institutions’ mission and continuing to provide quality care, including such issues as:
 How to best involve community stakeholders and obtain their support
 How to best navigate regulators and secure needed political support
 How not to go bankrupt in the process and find capital needed for transformation
March 14, 2014
55
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Healthcare & Distress - The Real Estate Dilemma
 In the past, hospital real estate was one of their biggest assets, built and structured to maximize
revenue generation under the fee-for-service model. It is no so today. The current environment calls
for a smaller, more efficient footprint aimed at shedding unprofitable beds and shifting emphasis to
ambulatory care.
 As a result of the needed operational efficiencies, increased need for service coordination, payment
caps, and reduction in profitability of patient turnover, the inpatient facilities operators are forced to
downsize and/or consolidate, creating excess real estate capacity that no longer supports the new
revenue models.
 The issue providers face is how to maximize the value of their biggest underutilized assets.
 While the scale of the issue caused by the passing of the ACA is new, this problem in its various
forms has manifested itself across the various parts of the country over the last few decades.
March 14, 2014
56
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Healthcare & Distress - The Debt
 As a result of the hospital real estate being the hospital’s biggest assets, the facilities often were able
to take on large amounts of debt that was secured by the real estate.
 The real estate, however, is no longer able to support large amounts of debt carried by the hospitals as
it no longer services to maximize the revenue under the new paradigm. In fact, it sometimes becomes
a liability.
 Inpatient operators need a strategy to restructure their debt overhang.
 The new capital structure should better match earning capacity of transformed operations.
 Recoveries to bondholders can be improved through creative use of various business structures
better suited for the new business models.
March 14, 2014
57
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Healthcare & Distress - Community & Political Support
 One of the biggest factors in the success of any medical facility transformation or repurposing projects
is the right level of participation and support of the community.
 Without early involvement, a voice in the decision making process, and ultimate buy-in of the
community where the medical assets are located, the projects will often be doomed.
 Any delays or ultimate change of plans imposed upon the operators through community activism and
political pressure will lose them more money and need to taken into account at the outset.
 Providers require a strategy on how to organize and manage community activists, allowing for a
fair opportunity at participation but preventing undue influence to the detriment of the providers.
The community’s stated interests often find themselves at odds with financial realities of the
providers. A balance must be achieved.
 In most of the situations, there is often a perception in the communities that a middle-of-the-road
solution does not exist: either things must remain in “status quo” or anything else is equivalent to
robbing them of their healthcare.
 Such perceptions must be managed. Unmanaged perceptions will lead to undesirable political
and regulatory pressures that will cause delays and may scuffle plans leading to further losses.
March 14, 2014
58
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Healthcare & Distress - Transformation Capital
 Once the road map has become more clear, the crucial issue that underpins any transformation is how to practically
make that change.
 Working on razor-thin margins already, the question for a hospital becomes how make the transition, abandoning old
revenue sources that continue to shrink without established new sources to turn to and how to pay for the
transformation.
 There is no single answer to that question. However, based on our experience, they can be addressed in a number of
ways including:
 Private capital
 Public-Private partnerships
 Philanthropy
 State and Federal economic development funds
 Public Authorities
 Innovative structuring of subsequent business models
 Ability to use one or the other source will often depend on the right structuring of the transaction and the transformation
plan.
March 14, 2014
59
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

 The nation’s hospitals are becoming distressed. The situation with Brooklyn hospitals described below is
indicative of health care problems faced by many hospitals around the nation. The old business model is no
longer working and the financial difficulties faced by these institutions will continue to mount driven by the health
care reform.
 Brooklyn communities, especially those located in central and northern neighborhoods, are besieged by a
number of unfavorable demographic and socioeconomic trends, including:
 High poverty rates;
 High reliance on government assistance;
 High incidences of disease and chronic disease;
 Low educational attainment; and
 Lack of health insurance.
 The situation in Brooklyn is not unique. Similar dynamics are observed around the nation at the crossroads of
private enterprise, local, state and national governments. While there is no one tactic or approach that
guarantees smooth sailing for all stakeholders, certain tried and true approaches and methodologies exist right
“out-of-the-box.” Others, however, need to be developed for specific circumstances at hand.
March 14, 2014
60
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

 These trends, in combination with other adverse factors, have created an impossible situation for Brooklyn hospitals that
is marked by such hurdles as:
 Unfavorable patient/payer mix;
 Lack of primary care networks, chronic disease management and community health programs;
 Lack of outreach aimed at influencing costly, undesirable behaviors such as emergency room over-utilization,
disease negligence, preventable complications and hospital readmissions;
 Poor quality of service that drives patients with good insurance to seek care in other hospitals;
 Over-bedding;
 Counterproductive competition that spreads a small number of profitable patients over multiple providers with
redundant overhead;
 Mismanagement, waste, corruption;
 Bailouts supporting outmoded system of care and facilities, resulting in poor health for community and financially
underperforming assets; and
 Additional financial pressure from further Medicaid and Medicare cuts mandated by the State and the PPACA.
 Secured creditors in distressed health care situations have a lot of power to drive the restructuring process and
transition the hospitals to new health care models, and choosing the right approach early can mean a difference
between recovery and loss.
March 14, 2014
61
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

 Reshaping healthcare facilities:
 Hospital facilities can be transformed for new purposes including critical inpatient and outpatient
services.
 The transformed campuses can be hubs for employment, education and job training.
 The campus can become a key feature of economic development strategies and health care
reform.
 Projects are local area-specific and based on the needs of the community.
 Cooperation between stakeholders is necessary.
 Projects build support for community benefit, access to non-traditional forms of financing and
promote healthier communities.
 Projects can enhance fund raising efforts for replacement hospitals.
 Positive values from successful strategies can be reoccurring for many years in the future.
March 14, 2014
62
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Credit Bidding in the Wake of Fisker Automotive
March 14, 2014
63
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Credit Bidding in the Wake of Fisker Automotive
 Credit bidding is a right that secured creditors have in bankruptcy sales allowing them to control the
sale of their collateral. When collateral that secures a lien is proposed to be sold at a bankruptcy
auction, a secured creditor is allowed to bid the amount of its debt as a credit bid, i.e. not a cash bid.
 The right to credit bid is found in 11 U.S.C. § 363 (k), which provides:
 At a sale under subsection (b) of this section of property that is subject to a lien that secures an
allowed claim, unless the court for cause orders otherwise, the holder of such claim may bid
at such sale, and, if the holder of such claim purchases such property, such holder may offset
such claim against the purchase price of such property.
March 14, 2014
64
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Credit Bidding in the Wake of Fisker Automotive (continued)
 Fisker Automotive (“Fisker”) Case Study
 In October 2013, the US Department of Energy (“DOE”) sold their $168.5 million senior secured loan to
Hybrid Tech Holdings LLC (“Hybrid”) for $25 million (15% of the loan’s face value).
 Prior to filing for bankruptcy, Hybrid and Fisker negotiated the acquisition of Fisker’s assets through a
credit bid of $75 million.
 Creditors committee objected to the sale and filed a motion requesting an auction to allow a competing
bidder (Wanxiang) to participate.
 At the hearing to consider the sale motion and the bidding procedures motion, the creditor’s committee
disputed Hybrid’s right to credit bid for the following reasons:
 If Hybrid was either prohibited from credit bidding, or its credit bid was capped at $25 million,
then there was a strong likelihood that an auction would create material value for the estate
over and above the present Hybrid bid;
 If Hybrid’s ability to credit bid remained uncapped there would be no realistic possibility of an
auction;
 Limiting Hybrid’s ability to credit bid would likely foster and facilitate a competitive bidding
environment; and
 The highest and best value for the estate could be achieved only through the sale of all of the
Debtors’ assets as an entirety.
March 14, 2014
65
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

Credit Bidding in the Wake of Fisker Automotive (continued)
 Judge Gross’s Conclusion
 On January 17, 2014 Judge Gross of the United States Bankruptcy Court for the District of Delaware
found, in the chapter 11 case of Fisker Automotive Holdings Inc., Case No. 13-13087, that “cause”
existed under section 363(k) of the Bankruptcy Code to cap a secured creditor’s rights to credit bid at the
sale of its collateral to the amount equal to what the lender paid to purchase the debt in the secondary
market.
 In Judge Gross’s Memorandum Opinion, he wrote “Thus, the “for cause” basis upon which the Court is
limiting Hybrid’s credit bid is that bidding will not only be chilled without the cap; bidding will be frozen.”
 Outcome of case
 Wanxiang topped Hybrid during the auction, with an offer of $149.2 million that includes $126.2 million in
cash, $8 million in assumed liabilities, and equity in a new entity that will be responsible for Fisker’s
assets.
 While the ruling results in uncertainly for the secondary market for bankruptcy claims, the court’s rational
applies equally to secured lenders. Fisker is clearly a reminder that a creditor’s right to credit bid can be limited
by a court for cause.
March 14, 2014
66
SEGMENT 2:
Manager
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

► You may ask a question at anytime throughout the presentation today. Simply click on the question mark icon located on the floating tool bar on the bottom right side of your screen. Type
your question in the box that appears and click send.
► Questions will be answered in the order they are received.
Q&A:
March 14, 2014
67
SEGMENT 1:
David E. Berliner
Partner
BDO Consulting
SEGMENT 2:
Stephen B. Darr
SEGMENT 3:
Peter Kaufman
and Distressed M&A
Gordian Group LLC

March 14, 2014
68
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