Actionable Ideas for Companies and Sponsors
The Trend Towards Accelerated Prepackaged Bankruptcies
2019 has witnessed the advent of the accelerated prepack, a prepackaged Chapter 11 filing that completes its reorganization in a month or less from the time of filing to emergence. The first accelerated prepack was for FULLBEAUTY Brands, a prepacked bankruptcy that was filed on February 3 and had its plan confirmed within one day of filing and emerged from Chapter 11 three days later. Sungard Availability Services also filed a prepacked bankruptcy on May 1 and had its plan of reorganization confirmed within 1 day of filing and emerged from Chapter 11 in less than two days. The advent of the accelerated prepackaged bankruptcy allows an increasing number of companies to deal expeditiously with their over-leveraged balance sheets. Moreover, given the savings attendant with a very short stay in bankruptcy, this frees up funding to provide creditors with a greater recovery.
Accelerated prepacked bankruptcies share several important characteristics, most notably (1) these cases have relatively simple capital structures, with few creditor classes and an indisputable fulcrum security; (2) these plans had the overwhelming, sometimes near-unanimous consent of impaired creditors, often consisting of concentrated groups of distressed investors intent on owning the debt post-reorganization; (3) the distressed investors often committed DIP or exit financing, thereby reducing the time, expense and uncertainty encountered when negotiating such financing arrangements from conventional lenders; and (4) the general unsecured creditors were treated as unimpaired, receiving either cash recoveries in full or reinstatement.