TEXT-Fitch: enterprise valuation key to creditor recoveries in bankruptcies

Thu Feb 14, 2013 3:23pm EST

Feb 14 - Fundamental estimates of reorganization enterprise value (EV) or
negotiated settlement values used in U.S. bankruptcy reorganization plans are
critical to the success of an issuer's reorganization process, as discussed in a
Fitch Ratings analysis of corporate bankruptcies.

This is the second edition of Fitch's series of bankruptcy case studies that
provide valuation information and ultimate recoveries on claims by seniority.
The median EV/forward EBITDA reorganization multiple was 6.1x for the sample.
The case outcomes inform and validate Recovery-Rating analysis assumptions and
provide information to market participants.

On average, the 75 defaulted issuers in Fitch's sample eliminated 68% of
pre-petition debt through their bankruptcy processes, with debt reduction in 73
of 75 cases. Fifteen companies emerged with no debt outstanding due to being
completely liquidated or emerging as going concerns with no debt.

The average debt/forward EBITDA leveraged ratio was 4.5x for the 60 companies
for which a bankruptcy emergence leverage multiple was available. Fitch notes,
however, that eight companies in the sample emerged with debt to EBITDA of 6x or
higher. Insufficient debt reduction raises the risk of a second default.

Relative position in the capital structure was also a key determinant of
recovery. First-lien creditors fared much better than junior creditors in terms
of ultimate recoveries: 54% of the 99 secured claims (all priorities) received
plan distributions that resulted in recoveries of at least 91% of the claim
amounts. Creditor recoveries on unsecured debt were more widely distributed: 43%
of the 71 unsecured issues received distributions of 10% or less of their claim
amount and 16% recovered at least 91%.

Enterprise value is central to Fitch's speculative-grade rating process. For
rated-entities with Issuer Default Ratings (IDRs) of 'B+' and below, Fitch
performs a custom valuation analysis that results in a recovery estimate for
each class of debt obligations.

The full report 'Case Studies in Bankruptcy Enterprise Values and Creditor
Recoveries - Volume 2' is available at 'www.fitchratings.com.' The report
provides valuation and recovery cases studies for 35 issuers and draws
statistics from 75 cases in the U.S. corporate ultimate recovery database.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Case Studies in Bankruptcy Enterprise
Values and Creditor Recoveries - Volume 2
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