Financial Distress, Restructuring and Bankruptcy

Introduction

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.

Course content

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)