Actionable Ideas for Companies and Sponsors

Private Equity Buyers Are Active with Accelerating Activity in Go-Privates and Corporate Carve-Outs

Sponsoring a plan of reorganization can be a creative way for private equity investors, hedge funds and strategic acquirers to take control of a distressed company when it emerges from Chapter 11. It is often the best alternative to a traditional 363 Asset Sale or plain vanilla Chapter 11 plan in situations where: (i) an asset sale will result in negative tax consequences, (ii) the solution to the restructuring requires new equity capital to execute a business plan or achieve consensus among disparate stakeholders, or (iii) when pre-petition creditors want to team up with a third party investor and retain interest in the re-organized company through a new money investment.

A Plan Sponsor transaction is one in which a private equity firm, existing creditor, or strategic acquirer agrees to invest new money in conjunction with a plan of re-organization. The new money is typically used to: (i) pay certain creditors in exchange for their claims and an affirmative vote in favor of the plan of re-organization and/or (ii) fund capital investments in the Company. In certain Plan Sponsor transactions, creditors receive a combination of cash from the new money investment plus a security interest in the re-organized company, often in the form of a minority equity stake in the reorganized company.