Creating Value Through Corporate Restructuring
Course Number 1420
Professor Stuart Gilson
Executive in Residence Kristin Mugford
Winter; Q3Q4; 3 credits
This course provides students with skills and knowledge that will prepare them for a variety of careers, ranging from general management and the job of CEO or CFO, to specialized careers in financial consulting, investment banking, turnaround management, commercial banking, litigation consulting, and investment management, including special situations ("distressed") investing. The course emphasizes that whether one is a restructuring specialist or a general manager, in the modern economy - and certainly in the current turbulent business environment -understanding how restructuring impacts business is critical.
The course prepares students to deal with the restructuring challenges and opportunities they will encounter throughout their careers. Restructuring is the process by which companies renegotiate the financial contracts and commitments they have entered into with their creditors, employees, suppliers, customers, and shareholders, usually in response to some financial challenge or crisis. Often it is also necessary to restructure the company's operations by cutting costs and selling assets. Topics covered in this course include Chapter 11 bankruptcy, out-of-court workouts, distressed exchange offers, "Section 363" asset sales, prepackaged bankruptcy, debtor-in-possession (DIP) financing, equity spin-offs, tracking stocks, "downstairs" mergers, buyouts, ESOPs, restructuring of retiree health care/pension plans, and corporate layoff/downsizing programs.
By applying tools and concepts introduced in the course, students will learn (1) how to recognize when a company can benefit from restructuring, (2) how to identify the best restructuring option or strategy for dealing with the problem, challenge, or opportunity that the company faces, (3) how to execute the restructuring effectively to create the most value possible, and (4) how to "sell" the restructuring to the company's constituencies, who may be asked to make significant sacrifices. Restructurings are often extremely complicated, and involve multiple issues around valuation, bond indentures, subordination agreements, bankruptcy law, employment law, taxes, litigation, regulation, etc. In analyzing the cases in the course, emphasis will be placed on drilling down into the details and "fine print" of these and other issues, which often reveals the best approach for addressing the company's problems. Although CVCR is primarily a finance course, students will also often have to take an interdisciplinary approach to problem solving, drawing on their training in strategy, accounting, law, and negotiation.
Content and Organization
The course has three modules, focusing on the restructuring of (1) debt and liabilities, (2) assets and equity, and (3) obligations to employees and related workforce claims. The course will focus on the decision-making processes of managers, creditors, investors, stockholders, suppliers, turnaround consultants, and financial advisers. The cases that students study in this course tend to focus on large companies, with complex capital structures, facing extremely challenging business situations (including threats to their survival). The course covers restructuring across a range of countries and industries, and features companies confronted by a range of problems and challenges. The primary pedagogical approach is case discussion. Cases will be supplemented with technical notes and outside readings. We will also be joined by a number of visitors who were involved in the cases, including managers, investment bankers, attorneys, and investors. One class is a negotiation exercise that simulates a real-world Chapter 11 bankruptcy (overseen by three distinguished local bankruptcy attorneys).