A Company provides bussing services and is distressed. Its has no cash, an undrawn $50m revolver, $50m
Question:
A Company provides bussing services and is distressed. Its has no cash, an undrawn $50m revolver, $50m secured term loan, and $200m of 12% bonds trading at 60. The bonds are due to pay their coupon tomorrow and are still trading with accrued interest. If at the last minute, the company draws down its entire revolver and decides to file for bankruptcy. What would the financial impact be to the holder? How much would you expect a buyer to pay for the bonds?
You believe the company is worth 6x EBITDA. If you thought the company was worth 7x EBITDA instead of 6x what would the bonds be worth?
Other Info: Badco has $25M of EBITDA. Bankruptcy costs will be $6m and bankruptcy should last 18 months.
As a distressed investor, what would you pay if you had a 20% hurdle rate of return?
Expert Answer:
If the company decides to draw down the entire 50m revolver and file for bankruptcy the financial impact to the bondholders would depend on the outcom... View the full answer
