Divesting Non-Core Assets in a Ch. 11

As part of a Chapter 11. Bankruptcy Plan’s feasibility requirements set forth in section 1129(a)(11) of the Bankruptcy Code, a Debtor’s management team in conjunction with their financial advisors will prepare and publicly disclose 3-5 year projections. These projections are required to demonstrate the Debtor’s ability to satisfy their financial obligations while maintaining sufficient liquidity and capital resources to operate effectively post-emergence. This process involves a deep dive into the historical financials of the Debtor and requires analysis at the business unit, location, and product level to determine how to best structure the Debtor post-emergence.

This analysis requires a skilled Financial Advisor who while performing this analysis can identify specific business units or locations that will not be part of a Debtor’s business post-emergence. Once these unnecessary business units or locations have been identified, the Debtor and their Financial Advisors should identify the underlying assets that comprise the various business units or locations that will be discontinued to determine (1) if these assets can be re-deployed to other business units or locations that will continue in the post-bankruptcy business or (2) if these assets should be labeled as “non-core assets” and be divested while under the protection of a Ch. 11 bankruptcy proceeding. Under normal course business operations, “non-core assets” can be defined as assets that are as not essential or no longer used in a company’s business operations. In bankruptcy, however, “non-core assets” can be more readily identified as assets not included in a Debtor’s go-forward business plan and associated financial projections. Commercial and residential real-estate are some of the most common and easily identifiable non-core assets that emerge from this analysis.

These identified non-core real-estate assets, whether commercial or residential, can offer essential liquidity or debt relief to a Debtor if sold quickly and under authority of the Bankruptcy Court. To expedite and prepare for a sale process during a Ch. 11 bankruptcy proceeding, a Financial Advisor should review any mortgages or liens against the property, obtain an appraisal of the property’s value, review the estate’s current cash needs, and analyze how a sale would affect the Debtor’s post-bankruptcy capital structure. Should it become evident that a sale of the non-core real-estate under the protection of a Ch. 11 proceeding makes sense, a Debtor and their Financial Advisor should work closely with Debtor’s counsel to determine the best way to divest the assets and obtain approval for a sale from the Bankruptcy Court. An astute Financial Advisor can add significant value to a Debtor during a Ch. 11 bankruptcy proceeding by identifying non-core real-estate assets, analyzing their value to the Debtor and various parties to the bankruptcy estate, and finally working with Debtor’s counsel to determine the best route of divesting the real-estate asset during the case.

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