Solyndra is, like many bankrupt companies, pressed for time.
The reason is simple: bankruptcy is expensive. The solar panel maker must pay not only its professional fees, but also those of creditors.
In some larger cases, multiple creditor classes (secured, unsecured, etc) increase this burden considerably.
Professionals can and do provide incredible value to distressed companies, but they often must work to balance the benefits they provide with the substantial costs that they impose.
A large driver of the recent shift in the restructuring world toward a transaction orientation is the need to strike this balance. Secured lenders (often banks), are in the business of renting money, and they like to be paid back in cash. Non-bank lenders are often more willing to take equity, but many are hesitant to take on any operating role. And equity may have an interest in trying again if the price is right.
A quick tempo section 363 sale has become the preferred solution to this tangle of preferences and risk tolerances. When the process works, a new buyer is identified who possesses the resources to recapitalize the company and fund a turnaround plan.
Of course, as any M&A banker will tell you: M&A is a process, and processes take time. Imperial Capital, the firm that has been retained by Solyndra to manage this expedited sale process, has reached out to 100 prospective buyers. With no stalking horse bidder the fate of the company hangs in the balance: the company plans to seek court approval of a sale by November 2, and has indicated that if no buyer is identified it will proceed with an orderly liquidation.
The upside of a transaction oriented approach toward restructuring is that it has a tendency to better align risk and return preferences. The downside is that many companies in the midst of a restructuring are effectively question marks, and the reliance on active buyers introduces a creeping pro-cyclical aspect (an M&A sales process) into a counter-cyclical situation (a restructuring). No market change is all positive or all negative, but this is certainly a trend worthy of note.
About the author:
David Johnson is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services to companies and municipalities. He can be reached at 312-505-7238 or at [email protected].
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