Opportunity Buying 101

8/14/2019 Opportunity Buying 101

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Richard A. Rogan

OPPORTUNITY BUYING 101Purchasing Valuable Assets Beforeand After Bankruptcy

2010 Jeffer Mangels Butler & Mitchell LLP. All rights reserved


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The information in this presentation has been prepared by Jeffer, Mangels, Butler & Mitchell LLP (JMBM) for generalinformational purposes only and should not be construed as legal advice on any subject matter, or to answer specific legalproblems you may have.

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Disclaimer


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Potential Buyers

Seller

Creditors

Stalking Horse Bidder

The Players

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Objective: Toarrange the bestpossible terms withthe certainty ofclosing.

Fears: Seller willuse buyers effort to

put the companyinto play. Someoneelse ends up buyingthe assets.

The Potential Buyers

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Objectives: To get agood price andreasonable terms

not a low-ball offer.To satisfy fiduciaryobligations tocreditors and

shareholders. Fears: Gettingsqueezed by thebuyer and thecreditors.

The Seller

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Objective: Obtainreliable data to help

create a swift cashpayoff.

Fears: Will have to

discount the debt;wait too long forpayment.

The Creditors

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Lenders

Leasing Companies

Cash payoff at closing

- Negotiate

Assumption and

assignment- Negotiate?

- Cure payments?

How lowwill they go?

Secured Creditors Consensual

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Lienholders

- Judgment liens- Mechanics liens

- Ag (producers liens)

- Tax liens

Cash payoff

- Negotiate?

Secured Lenders Nonconsensual

How lowwill they go?

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Assumption andassignment?

Caps on unsecuredclaim

- State law

- Bankruptcy Code

- Out of court?

Is propertyessential?

Want premises back?

Landlords

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Will insist on

gettingsomething.

Unsecured

Official v. Unofficial

Oversee Process- Fairness

- Get best price

- Get simplest terms

- Discount for cash?

Assumed executory contracts

Cure payments

Creditors Committee

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Auction

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Distress Sale Outside of Bankruptcy

Foreclosure by Secured Creditor

Receivership Assignment for Benefit of Creditors (ABCs)

Bankruptcy

Chapter 11

Chapter 7

Involuntary

Prepackaged

The Framework

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Quick

Flexible

No Court approval Fiduciary duties

Form unofficialCreditors

Committee Compositionagreement?

Liens

- Must negotiate

Assumption andassignment

Bulk sale notice?

Fraudulent transferconcerns

Receivership

InvoluntaryBankruptcy

Distress Sale: Outside of Bankruptcy

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Quick- Personal Property,10

days

- IRS Notice, 25 days- Real Property, 4 months

Must pay off SecuredCreditor

Difficult if multiplesecured creditors,landlords, leases Group sale?

Payment by priority

Lien-free sale- Caveat: some assets

might not be subject tobanks lien

No Court approval Not a fraudulent transfer

Foreclosure by Secured Creditor

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Neutral party

Appointed by Court

Equity receivers Corporate dissolutions Partnership

dissolutions

Rents and profitsreceivers Loan defaults

Receiver controlssellers position

Sale requires Courtapproval

Liens must be paidor negotiated

Receivership

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Neutral party

No Court

involvement Creditors committee

Assignee controls

sellers position Liens must be paid

or negotiated

Assignment for Benefit of Creditors

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Chapter 11

Chapter 7

Involuntary

Prepackaged

Bankruptcy

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Section 363 Sale

- Court Approval

Debtor in Possession- Retains control

- Has some goal

Creditors Committee

- Wants to encouragebidding

Sale procedures order

- Stalking Horse

Secured creditors must bepaid in full or consent

Sale Auction

Sale confirmation order

- Free and clear of liens

- Good faith buyer

Sale pursuant to confirmed

plan of reorganization- Could liquidate all assets

- Could sell off someassets

Chapter 11

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Section 363 Sale Trustee

- Cannot operate business for long

No Creditors Committee Free and clear of liens

Sale procedures order- The stalking horse bid

Sale Auction

Sale Confirmation Order- Free and clear of liens

- Good faith buyer

Chapter 7

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3 Creditors

$13,475 claims

- Not contingent

- Unsecured

Use to force sale

Chapter 7 Trustee- Elect trustee

Usually converts toChapter 11

Involuntary

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Strike deal beforebankruptcy

Write restrictiveterms of sale

Seller files Chapter11

Immediately movesto confirm sale

Must satisfy Courtand creditors

Fairness issues Sale - Auction

Prepackaged

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Sellersconsiderations

Buyersconsiderations

Stalking horse

bidder Other bidders

The Sale

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Hire pros

Investment banker

Business broker

Real estate broker Appraisers

Attorneys

Define the Sale

What is being sold? Ideal terms

Timeline

Identify target buyers

Financial disclosures

Qualify bidders balance capabilityagainst open bidding

Creating the Procedure: Seller's Considerations

Level the playing field

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Clarify objectives

- Desired end result?

- Value to buyer?

- All or part? Hire Professionals

- Valuation experts

- Attorneys

Define ideal terms

- Contracts and leasesto be assumed andassigned

- Cure payments?

Do you want to bethe...

Buyers Considerations

Tilt field to favor the buyer

Creating the Procedure

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Set opening bid Low bid encouragesoverbids

Set sale procedure Get involved in auction

Pre-qualify bidders Other qualified buyersmight outbid you

Break-up fee and initial overbid Limited to actual expenses

Subsequent overbids Increases ultimate price

Unique terms Not a level playing fieldAssume certain contracts Subject to attack unfair

cure payments

Not all cash Could lose to cash buyer

PROS CONS


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Complete duediligence

Risk costs

Fight for levelplaying field

In Court salesprocedures order

Out of Court termsof bidding

Can you spin off someassets?

-Avoid collusion

Qualification as bidder

Bid what is right for

you- Modifying terms

If You Aren't the Stalking Horse

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Questions

Richard A. Rogan

Jeffer, Mangels, Butler, & Marmaro LLPTwo Embarcadero Center, 5th Floor

San Francisco, CA 94111(415) 398-8080

[email protected]

2009 Jeffer Mangels Butler & Marmaro LLP. All rights reserved2010 Jeffer Mangels Butler & Mitchell LLP. All rights reserved.

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Opportunity Buying 101

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