Exam 32: Corporate Restructuring

In a private-equity partnership arrangement, the general partners put up most of the money but receive a management fee and get a carried interest in the fund's profits.

Which class of creditor suffered the most during the Chrysler reorganization?

A spin-off is a new, independent company created by selling some of a parent company's assets to new investors.

Leveraged buyouts (LBOs)almost always involve which of the following? I.a large part of the purchase price is financed by debt; II.most of the issued debt is below investment grade (i.e., junk); III.the firm goes private and its shares are no longer traded on the open market

In carve-out transactions:

Suppose that a bankrupt firm, while in the process of developing a reorganization plan, is allowed to buy goods on credit and borrow money to finance needed working capital. Such an arrangement is called

Explain how private-equity partnerships are organized.

The following are examples of privatization EXCEPT:

The largest gainers from LBO transactions have typically been

A conglomerate is a firm that

There are two common types of bankruptcy procedures in the United States, which are set out in Chapter 7 and Chapter 11 of the 1978 Bankruptcy Reform Act.

Private-equity partnerships avoid the free cash flow problem that often troubles conglomerates.

Junk bonds are bonds that

Briefly explain what is meant by privatization.

A spin-off is a(n) I.new company; II.independent company; III.company formed by detaching part of a parent firm's assets and operations;

The gains from LBOs typically derive from

The following are advantages of private-equity partnerships: I.Carried interest gives the general partners potential for high profits. II.Carried interest, because it is a call option, gives the general partners incentives to take risks. III.There is no separation of ownership and control as general partners can intervene in the fund's portfolio companies any time performance lags or strategy needs change. IV.There is no free cash flow problem as cash from the first round must be distributed to investors and not reinvested.

The following statements are true of private-equity partnership agreements: I.The partnership agreement has a limited term, typically 10 years or less. II.The general partners get a management fee plus carried interest in 20% of any profits earned by the partnership. III.The limited partners get paid off first, but they get only 80% of any further returns. IV.The general partners can reinvest the limited partners' money.

LBOs often occur because managers are not maximizing shareholder value.

Carve-outs are identical to spin-offs.