GRA 6289 Financial Distress, Restructuring and Bankruptcy

GRA 6289 Financial Distress, Restructuring and Bankruptcy

Course code: 
GRA 6289
Department: 
Law and Governance
Credits: 
6
Program of study: 
Master of Science in Law and Business
Course coordinator: 
Morten Kinander
Øyvind Norli
Product category: 
Master
Portfolio: 
MSc in Law and Business
Semester: 
2020 Autumn
Active status: 
Active
Teaching language: 
Norwegian
Course type: 
One semester
Introduction

Teaching language will be both English and Norwegian. There may also be exams given in English.

A company is in financial distress when debt repayments are due and the company does not have enough cash to make the payments. In this situation, the company must either restructure their funding and operations or declare bankruptcy. Restructuring efforts may involve selling off assets, negotiation with creditors, and/or performing financial restructuring. To decide whether the company is in fact bankrupt or if there are grounds for continued operations, it is necessary to have deep knowledge of financial and legal rules pertaining to financial distress and bankruptcy. The main goal of this course is to provide students with this knowledge.

Learning outcomes - Knowledge

After completed course, the student will have acquired knowledge on:

  • Norwegian and international bankruptcy law
  • the mechanics of bankruptcy
  • the various type of claims that are relevant in bankruptcy proceedings
  • the different options available to a firm in financial distress
  • the duties of action and equal treatment of shareholders in bankruptcy
  • the tradeoff between costs and benefits of debt
  • the tradeoff between restructuring and bankruptcy
  • the costs of financial distress
  • central and important EU/EEA directives and regulations
Learning outcomes - Skills

After completed course the student will be able to:

  • value a firm in bankruptcy
  • suggest proper action for a firm in financial distress
  • deal with cross-border restructuring
  • use Credit Default Swaps to hedge credit risk
General Competence

After completed course the student should be able to identify and understand the incentives of all parties involved when a firm ends up in financial distress.

Course content
  • Introduction to bankruptcy.
    • Company analysis: Pledges, types of creditors (bonds & banks, secured & unsecured), number of shareholders, credit facilities.
    • The tradeoff between costs and benefits of debt. The mechanics of bankruptcy. The tradeoff between restructuring and bankruptcy. Costs of financial distress.
    • Case: Restructuring JAL. HBS.
  • Stakeholders/overview of players: Majority and minority shareholders, employees, creditors and contractors, societal interests.
  • Insolvency and bankruptcy law: Illiquid and insufficient
  • Mandatory equity levels (forsvarlig egenkapital) and duties of action (handleplikt ved lav egenkapital). Equal treatment of shareholders (likebehandlingskrav)
  • Discount private placements (kriseemisjoner)
  • Restructuring: Intercreditor agreements, bondholder meetings, asset sale, demerging, etc.
    • Divestitures. Equity carve-outs. Spin-offs. Split-ups. Split-offs. Tracking stocks. Leverage recapitalizations.
    • Case: Restructuring at Nova Chemical Corporation. HBS
  • Listed companies in financial distress
    • Case: SAS in crisis.
  • Getting control in bankruptcy.
    • Economic vs. financial distress. How does initial capitalization contribute to financial distress? Control in bankruptcy, cross-border legal issues.
    • Case: Restructuring Navigator Gas Transport PLC. HBS.
  • Post-reorganization equities and bankruptcy dynamics.
    • Distressed investing, debt exchanges and loan-to-own strategies. Valuation of bankrupt firms.
    • Case: H Partners and Six Flags. HBS.
  • Debtor-in-possession (DIP) financing
    • Restructuring of complex capital structure. Comparing bankruptcy laws in different countries. DIP financing. Creditor conflicts and recovery. Intercorporate guaranties.
    • Case:  Lyondell Chemical Company. HBS.
  • Credit Default Swaps (CDS)
    • Credit derivatives and hedging credit risk. Debtholders incentives to negotiate. Credit derivatives and macro risk.
    • Case: Delphi corp. and the Credit Derivatives Market. HBS.
Teaching and learning activities

The course uses lectures, case discussions, and project assignments. Class discussions of current events are an important part of student learning in this class.

 

Software tools
No specified computer-based tools are required.
Additional information

Please note that while attendance is not compulsory in all courses, it is the student’s own responsibility to obtain any information provided in class.

All parts of the assessment must be passed in order to get a grade in the course.

Qualifications

All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have specific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.

Exam categoryWeightInvigilationDurationSupport materialsGroupingComment exam
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA62891
Grading scale:
ECTS
Grading rules:
Internal examiner
Resit:
Examination when next scheduled course
40No2 Week(s)Group (3 - 4)
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA62892
Grading scale:
ECTS
Grading rules:
Internal and external examiner
Resit:
Examination when next scheduled course
60Yes3 Hour(s)
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Book: Erling Christiansen og Bjarne Rogdaberg (eds), "Materialsamling i børs- og verdipapirrett"
  • Compilation of laws
Individual
Exams:
Exam category:Submission
Form of assessment:Written submission
Weight:40
Invigilation:No
Grouping (size):Group (3-4)
Support materials:
Duration:2 Week(s)
Comment:
Exam code: GRA62891
Grading scale:ECTS
Resit:Examination when next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:60
Invigilation:Yes
Grouping (size):Individual
Support materials:
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Book: Erling Christiansen og Bjarne Rogdaberg (eds), "Materialsamling i børs- og verdipapirrett"
  • Compilation of laws
Duration:3 Hour(s)
Comment:
Exam code: GRA62892
Grading scale:ECTS
Resit:Examination when next scheduled course
Type of Assessment: 
Ordinary examination
Total weight: 
100
Student workload
ActivityDurationComment
Prepare for teaching
6 Hour(s)
Case preparation (if relevant).
Student's own work with learning resources
85 Hour(s)
Including preparation for class.
Teaching on Campus
36 Hour(s)
Including any case presentation (if relevant).
Group work / Assignments
30 Hour(s)
Examination
3 Hour(s)
Sum workload: 
160

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 6 ECTS credits corresponds to a workload of at least 160 hours.