Articles

This article delves into the complexities of credit risk analysis, emphasizing the need to go beyond traditional balance sheet assessments. The seasoned perspective of a bankruptcy attorney is utilized to uncover often overlooked liabilities and assets that significantly impact credit risk evaluations. Hidden Liabilities: WARN Act Claims: Liabilities under the WARN Act, relating to employee compensation upon termination, can dilute recoveries in bankruptcy and may not be apparent on balance sheets. Environmental Obligations: Cleanup costs arising from business closures may not be fully disclosed, impacting recoveries with potential payment priority. Contract Rejection Claims: Damages from lease or contract terminations, often absent from balance sheets, can affect the recovery pool for general unsecured creditors. Underfunded Pension Obligations: Common in low-interest-rate environments, underfunded pension obligations are often understated on balance sheets. Intellectual Property Valuation: Subjective valuation of intellectual property can affect bankruptcy proceedings, where underutilized assets may not be apparent. Unseen Assets: Lease Portfolios: Real estate leases, assignable in bankruptcy, may not be fully considered on balance sheets, impacting liquidation analyses. Strategic Intellectual Property Use: Evaluating the full exploitation of intellectual property becomes vital in bankruptcy or restructuring, uncovering additional revenue streams. Mitigating Downside Risks: Prudent credit executives recognize that balance sheets offer only a starting point. The article emphasizes the high costs associated with bankruptcy and the often unquantifiable impact on asset values. A comprehensive risk analysis considers market conditions, regulatory requirements, and contingent assets and liabilities. Conclusion: Unveiling hidden risks in credit risk analysis involves a holistic approach, acknowledging the limitations of balance sheets. By understanding and evaluating these overlooked factors, credit professionals can enhance risk assessments, ensuring a comprehensive grasp of a customer's financial health. In a landscape where bankruptcy impacts stakeholders, this approach is crucial for minimizing losses and navigating credit risks effectively.

When a community hospital closes or is sold to a for-profit operator, there is a loss to the community. Despite protestations by for-profit operators, a community loses something of value by the conversion of a nonprofit hospital to a for-profit hospital. The mission statements are different. The question is how the loss gets valued and whether the community is compensated for the loss. Societal benefit played a role in the development of bankruptcy law in the U.S. And it should play a role in the allocation of proceeds from the sale of a nonprofit hospital. According to an article by University of New Mexico law professor Nathalie Martin, the U.S. bankruptcy system is among the many social programs that address society’s ills. Our bankruptcy laws recognize the impact of a chapter 11 case on society and vice versa. Thus, the impact of society (aka the “community”) on a chapter 11 case and the impact of a chapter 11 case on society are appropriate considerations for how assets are divided in a bankruptcy case....

A New York Times article published in October discusses how litigation financing may warp the legal system. The author posits that litigation finance gives rise to a litigation arms race, with speculative money aggravating the already-high costs of the American legal system. The article says: “It’s hard to imagine how billions in outside capital won’t end up changing the justice system. The only question is how.” In the world of bankruptcy, there has evolved a vibrant market for trading unsecured claims. Trade creditors often are almost as desperate for cash as their customer in chapter 11. They may not understand the extra value of priority claims. They usually do not have a feel for the dividend that the case likely will yield. Their experience probably is that it takes too long to see a dividend, making fast money attractive....