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Reorganization
Case Study
Background
The headquarters of a materials company in bankruptcy is a key
tenant in an office building considered for acquisition.
The tenant posted staggering losses before and during its
reorganization. The rather lengthy reorganization period had
saddled the tenant with significant unpaid professional
fees.
Issue
Is the company a viable tenant?
Analysis
By understanding the history of the tenant and the key components
of its reorganization, CTA concluded the tenant's best chance for
reemergence was during the next few quarters. By shedding
operations which exposed the tenant to significant commodity
price risk and continued high fixed costs, the Company was able
to dramatically improve profitability. The key end markets
for the tenant were experiencing robust demand. However, by
shrinking the company significantly, the remaining operations
provided modest cash flows after fees.
Result
The tenant eventually emerged from bankruptcy and completed an
IPO. Strong sales to key markets led the tenant's shares to
double within the next year even after excluding first day IPO
gains.
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