GRA 6289 Financial Distress, Restructuring and Bankruptcy
GRA 6289 Financial Distress, Restructuring and Bankruptcy
Teaching language will be both English and Norwegian. Exams may be given in both English and Norwegian.
A company is in financial distress when debt repayments are due, and it does not have enough cash to make the payments. In this situation, the company must either restructure its funding and operations or petition for the opening of liquidation proceedings. Restructuring efforts may involve selling off assets, negotiating more beneficial payment terms with creditors and/or performing financial restructuring through restructuring proceedings. To decide whether the company should be liquidated 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 proceedings – i.e., liquidation proceedings and restructuring proceedings. The main goal of this course is to provide students with this knowledge.
After completing the course, the student will have acquired knowledge on:
- Norwegian and international bankruptcy law
- the mechanics of liquidation proceedings and restructuring proceedings
- the various types of claims that are relevant in bankruptcy proceedings
- the different options available to a firm in financial distress
- the duties of a financially distressed company’s board and CEO
- the tradeoff between costs and benefits of debt
- the tradeoff between restructuring and liquidation
- the costs of financial distress
- corporate divestitures
After completing the course, the student will be able to:
- value a firm in bankruptcy
- determine the legal effects of liquidation proceedings, including effects on transactions made prior to the commencement of the proceedings
- analyze the extent to which a distressed firm can use restructuring proceedings to restructure its assets and liabilities
- determine whether foreign bankruptcy proceedings will be legally binding in Norway
- suggest proper action for a firm in financial distress
- analyze investments in distressed firm securities
- use models to evaluate credit risk and predict distress
After completing the course, the student should be able to identify and understand the incentives of all parties involved when a firm ends up in financial distress.
Law
Introduction to bankruptcy law. The parties involved and their interests. Overview of Norwegian liquidation proceedings.
The conditions for opening liquidation proceedings. The position of secured creditors and counterparties to executory contracts. Transaction avoidance and the distribution of available funds among the creditors.
Norwegian restructuring proceedings. Financing restructuring proceedings. The extent to which a restructuring proposal is binding on dissenting creditors.
Duties of the board and the CEO of distressed companies. Out-of-court restructuring.
Cross-border insolvency. Recognition of foreign insolvency proceedings under Norwegian law. US chapter 11 proceedings. Restructuring corporate groups.
Finance
Corporate financial distress and leveraged finance. Reasons for corporate failure. Leveraged finance market.
Valuation of distressed firms. Valuation methodologies and challenges.
Restructuring and the cost of financial distress. Corporate divestitures.
Investing in distressed firm securities. The high-yield bond market.
Credit risk and distress prediction models. Applications of distress prediction models.
Case studies
Lyondell Chemical Company (Harvard Business School case)
H Partners and Six Flags (Harvard Business School case)
The course uses lectures, case discussions, and project assignments. Class discussions of current events are an important part of student learning in this class.
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.
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.
Disclaimer
Deviations in teaching and exams may occur if external conditions or unforeseen events call for this.
| Assessments |
|---|
Exam category: Submission Form of assessment: Written submission Weight: 40 Grouping: Group/Individual (1 - 4) Duration: 2 Week(s) Exam code: GRA 62891 Grading scale: ECTS Resit: Examination when next scheduled course |
Exam category: Submission Form of assessment: Written submission Invigilation Weight: 60 Grouping: Individual Support materials:
Duration: 3 Hour(s) Exam code: GRA 62892 Grading scale: ECTS Resit: Examination when next scheduled course |
All exams must be passed to get a grade in this course.
| Activity | Duration | Comment |
|---|---|---|
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 | 36 Hour(s) | Including any case presentation (if relevant). |
Group work / Assignments | 30 Hour(s) | |
Examination | 3 Hour(s) |
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.