Abstract

MKHONDO, RS  and  PRETORIUS, M. Funding structures in business reorganisations: locating the role of pre-packaging as a restructuring tool. JCMAN [online]. 2017, vol.14, n.1, pp.831-863. ISSN 1815-7440.

Pre-packaged funding increasingly plays a prominent role in resolving distressed assets under reorganisation laws globally. Based on a qualitative and exploratory analysis, this article examines the actual operations of prepacks, including the various structures and funding mechanisms used. In many cases, funders and acquirers of distressed assets under reorganisation do not distinguish between pre-pack and post-filing opportunities, but the funding and structuring mechanisms and timing thereof often become the determining factors in the how they are classified. This study improves our understanding of the financial complexities involved in pre-packaged funding such as the structuring and valuation of transactions, which would be particularly useful to newer entrants to prepackaging who are considering its application. The analysis of available scientific contents revealed that many of the funding institutions employ a variety of funding mechanisms that often complement one another. It was also found that many of the funding institutions, especially hedge funds, often apply pre-packaged funding as an entry to the acquisition of such distressed assets, usually before the occurrence of the distress event. This study further revealed a correlation between a vibrant distress funding market and sophisticated funding mechanisms, which often charts the course for the establishment of pre-packs.

Keywords : business reorganisation; business rescue; debt; debt-to-equity; distress investors; equity; funding structures; prepackaged funding; pre-petition; post-filing; restructuring; secured debt; unsecured debt; valuation methodologies.

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