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Please refer the assignment case to answer the below questions. PinewoodAssignment Questions Is Pinewood’s financial distress a result of unfortunate circumstances or poor strategies adopted by the...

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Please refer the assignment case to answer the below questions.

PinewoodAssignment Questions

  1. Is Pinewood’s financial distress a result of unfortunate circumstances or poor strategies adopted by the CEO during the expansion period? Was the asset-restructuring program implemented by Walker after 2008 effective in achieving the company’s cash needs? 

  2. What are the advantages and challenges of an out-of-court restructuring, compared to a Chapter 11 filing? Did Walker make a mistake by not accepting the acquisition and asset purchase offers? 

  3. What interests do secured lenders,unsecured debtholders, trade creditors, preferred stockholders, common stockholders, and management have? What incentives or circumstances will induce them to support, or reject, an out-of-court restructuring? 

  4. What is Pinewood’s enterprise value based on management’s cash-flow forecast? Is the value credible? (Use CFW Equity Valuation template with information from caseexhibits.)

  5. What is the estimated recovery of each class of claims? Compare your estimates with the respective principal amounts and market values. How would the recovery to each claimant change in a more pessimistic scenario? 

  6. What is the estimated recovery to each class of claims if the company is sold or liquidated instead? Will Walker receive the minimum vote he needs for the out-of-court restructuring?
Answered Same Day Jun 20, 2021

Solution

Tanmoy answered on Jun 21 2021
148 Votes
Pinewood Mobile Homes, Inc. – Financial Distress Analysis
Is Pinewood’s financial distress a result of unfortunate circumstances or poor strategies adopted by the CEO during the expansion period? Was the asset-restructuring program implemented by Walker after 2008 effective in achieving the company’s cash needs?
Pinewood’s expansion happened during the housing crisis 2007-08 where the housing market crashed and Pinewood Mobile Home, Inc. was in great trouble. It was a $110 million consortium of seven U.S. Banks with National Bank of Dallas being the lead bank for initiating the loan was allotted to Pinewoods for meeting their rising investment and working capital need in the year 2000. Hence, Pinewood’s debt increased beyond its repayment capacity. The Pinewood executives thought that the housing industry would boom in the future and eventually help Pinewood refu
ishment manufacturing company to flourish. Due to crash, the CEO of Pinewood, Kenneth Walker was forced to liquidate the non-core assets in order to have enough liquidity afloat. Even during the housing bu
le, Mr. Walker wanted to expand and took debt to finance the expansion. He wanted to capture more market share by procuring debt for running the company and payment to the share and debt holders. But, since the housing market was over inflated and fictitious due to inappropriate lending by the banks to non-credit worthy customer during this crisis, Pinewood was able to get the loan. Therefore, Mr. Walker was actually taking the debt to finance company’s dividend to the shareholders and interests to the debt holders. Finally, even after taking loans from the banks the financial situation of Pinewood did not improved. Finally, they had to withdraw payment of debt and dividend payments. The terms of consortium loan from National Bank of Dallas was about to get over in 2010. But, its stock price was collapsing drastically. The existing shareholders were not even interested to invest in Pinewood. It seemed that Pinewood was bankrupt. There were two options available to Pinewood which was either service its debt or finance its new operations. It took three month moratorium from the banks for repayment of the loan to find better buyers. An exchange offer and restructuring of the company’s debt and assets was another plan. But, this will dilute all the existing shares. Thus, three options were available for Pinewood which was bankruptcy, dilution or privatisation. Thus, it was a combination of poor unplanned strategies and decisions and unfortunate events made by Mr. Walker for expansion of Pinewood. Also, the asset restructuring program initiated by Mr. Walker to revive Pinewood from the distressful situation was unable to meet the immediate liquidity.
What are the advantages and challenges of an out-of-court restructuring, compared to a Chapter 11 filing? Did Walker make a mistake by not accepting the acquisition and asset purchase offers?
The advantage which Pinewood gets due to an out-of-court restructuring is that they would be able to avoid the legal burdens of filings for chapter 11 and is able to get the leftovers after payment is made to the creditors. The disadvantages or challenges of an out of court restructuring is that the buyers of Pinewood are not willing to pay the actual fair market value of what Pinewood has been able to incur over these years of business. Rather they are willing to pay at the bankrupt price and Pinewood executives are not willing to sell itself at the bargain or basement price. Also, due to sell-off of its non-core assets, Pinewood will be left with only the core assets and without core product line. This means the share value would diminish drastically. The filing of chapter 11 would atleast keep the foreclosure from getting activated. This will result in suspension of debt and beginning of new financing opportunities. But, since the reputation or the
and image of Pinewood is in distress the cost of legal proceedings would be very high. Pinewood has to give up some of its strategic control to the creditors. But, this is not a prospective solution to Walker’s dismay. On the other hand, if he would have accepted the purchase of assets offer made by the buyers then he would have sold most of his core assets at huge discounts. This would result in liquidation of Pinewood’s core components. But, for Mr. Walker there is no choice during the time of distress and survival. It could also be possible that Mr. Walker would start from the nascent stage and work hard to achieve the targets and repay the debts. Now due to the housing crisis Pinewood is in...
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