Page 103 - Bankruptcy Volume 1

Exhibit 1, "Analysis of Recoveries Based on Reorganization Value," outlines the analyses of recoveries
based on reorganization value in the XYZ example. The recovery percentages to each creditor group
based on a reorganization value of $3.34 million are 100% for the senior secured debtholders and 70%
to the subordinated debtholders and trade creditors. Because a claimant’s share of the reorganized debtor
is an allocation based on its legal standing and priority vis-à-vis other creditors, its recovery percentage
changes depending upon the reorganization value. A creditor group seeking equity in a reorganized
debtor is indifferent to the reorganization value placed upon the entity by others if (1) it believes the re-
organization value it has determined is correct, and (2) it demands (and receives) a straight percentage of
the new equity. For example, in the XYZ example, as long as the senior secured debtholders believe that
the reorganization value is $3.34 million and receive 100% of the new equity of the reorganized debtor,
they remain whole. Should the reorganization value prove to be higher, their recovery will be greater
than 100%. However, as exhibit 1 demonstrates, should reorganization value actually be less than $3.34
million, the senior secured debt holders’ recovery percentage will decline.

EXHIBIT 1

XYZ Company, Inc.
Analysis of Recoveries Based on Reorganization Value

Structure before reorganization
Assumed reorganization value of XYZ $ 2,340,000 $ 2,590,000 $ 3,340,000
Company, Inc.
Less:
Existing senior secured debt 2,500,000 2,500,000 2,500,000

Existing subordinated debt 1,000,000 1,000,000 1,000,000
Existing trade creditor debt 200,000 200,000 200,000

Current outstanding debt 3,700,000 3,700,000 3,700,000

Equity (deficit) before restructure $ (1,360,000) $ (1,110,000) $ (360,000)

Debt restructure

Senior secured debt (percent of face val- $1,500,000 $1,500,000 $1,500,000
ue)
60.0%
Subordinated debt (percent of face value) 700,000 700,000 700,000
70.0%
Trade creditors (percent of face value) 140,000 140,000 140,000
70.0%
Total debt after restructure $ 2,340,000 $ 2,340,000 $ 2,340,000

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