Book: Distress Investing
Author: Marty Whitman & Fernando Diz
Authors state that the book is about buy-and-hold investing in distressing securities (as opposed to trading distressed securities), and this entails investing in performing loans and if there’s a Ch. 11, usually seeking to be a part of the reorganization process (including sometimes seeking elements of control of the reorganized company).
Distress investing revolves around 4 different types of businesses-
- Performing loans likely to remain performing loans
- Small re-orgs/liquidations (<~$300 mm)–often done using pre-packs as that’s the only viable way for survival
- Large re-orgs/liquidations
- Capital infusion in troubled companies–very dilutive for existing shareholders unless such offerings are made pursuant to rights offerings to existing shareholders
Ch.1 – The Changed Environment:
- Price: Back in early ’80s, one could buy secured loans of performing companies at 40c on a $, whereas after the early 90s, it went up in the 85-90c range.
- Business Cycle: Now, even shallower slowdowns are leading to more credit contractions (possibly related to the next point below), and likely due to higher leverage used by companies.
- Potential Funding Instability: 70% of performing loans are held by non-bank institutions such as HFs and CDO trusts. See data by “Fed’s Shared National Credits Program”. Over the decades, banks have become more of an underwriter/distributor vs. financial intermediary/investor.
- New Ways to Express Opinion: Around the ’08 crisis, HFs speculated in CDSs of the companies with large amounts of leverage and influences market perceptions of credit-worthiness of issuers even though they might be less knowledgable than a bank/rating agencies making such an assessment.
- 2005 BAPCPA Act: (a) imposed new time limits on debtor’s exclusive right to file a POR (re-org plan), (b) shortened the time in which debtor can assume (or reject) non-resi real-estate losses, (c) attempted to limit exec compensation paid under KERPs, and (d) enhanced rights of trade vendors.
- Administrative Costs: These have ballooned so much that pre-packs have increased significantly.
Ch.3 – Causes of Financial Distress:
Lack of access to capital markets, poor operating performance, ballooning off-B/S liabilities are some of the typical causes of distress. If the capital structure is unfeasible but op. performance is fine, re-orgs are viable and the situation has to be addressed accordingly, but in other cases, a liquidation analysis may be more useful.
Ch.4 & 5 – Deal Expenses and Other Related Issues:
Section 503(b)(4) of the bankruptcy code gives professional fees and legal expenses the legal status of an administrative expenses, which is important because section 507(2) gives administrative expenses super-priority in payment over any other unsecured claim. This means that the professionals who work on a re-org are biased toward prolonging the case, and there are statistical studies supporting this. These expenses are paid in cash and on the pay-as-you-go basis, and a clear drain on the estate and can affect the debtor’s feasibility as a going concern. These costs are more pronounced drain on small re-orgs and often make pre-packs the only viable option for such re-orgs. As an aside, financial advisors’ compensation do have a bonus component but attorneys typically are paid in cash strictly based on time spent. Given these, one needs to be wary when multiple professional firms are hired by various parties in the case–this increases the calendar time spent to resolve the case.
Management entrenchment, compensation and post-reorg governance are important issues in assessing troubled companies. Before the 2005 BAPCPA Act, debtors implemented KERPs that typically provided for key executives to be paid a bonus to remain with the debtor on the presumption that they were key to be debtor’s success, but the 2005 Act’s made approving such plans (in theory, at least) harder–such plans are structured as incentive plans, which are not covered under section 503.
Ch.6 – The Five Basic Truths of Distress Investing:
- Outside of Ch. 7/11, nothing can take away a debt investor their rights to a money payment
- Ch. 11 rules influence all re-orgs whether they’re voluntary exchange offers, conventional Ch. 11, or pre-packs.
- Substantive characteristics of securities–investment’s value is PV of all cash bailouts, whoever the source (vs. John Burr Williams’ definition of PV of all dividends). As an aside, commercial banks and insurance companies are by definition non-control investors and in a POR, are often required to take common stock. Rule 1145 of POR requires that persons getting >5% of the stock must hold it for 1+ years after which they can be dribbled out at 15% of daily volume/1% of the issue.
- Restructuring is costly for creditors given the administrative costs.
- Creditors only have contractual rights, not residual rights, which belong to the owners. When the company is solvent, the directors’ duty is for fair dealing with owners. When the company enters the zone of solvency (which is hard to pinpoint) the role of directors shift toward protecting the interests of the creditors (vs. shareholders), and if the company is decidedly insolvent, the role shifts completely to protect the right of the creditors.
Ch.7 – Voluntary Exchanges:
Reorganizations can be voluntary (each creditor makes up his/her mind) or mandatory (required if there’re sufficient votes–2/3rd in case of Ch. 11, or in case of court-ordered cram-down). It is hard for voluntary exchange offers to succeed because the very purpose of the offer–to credit-enhance the company, has to result in non-exchanging creditors being credit-degraded, and this can’t always be accomplished.
For a voluntary offer to succeed, the debtor must exhibit a meaningful downside to the creditor, which can come in two forms–(a) making the non-exchanging debt junior to the exchanging debt (e.g. proposing a 7% PIK senior to a 6% bond–which is more likely to pass given than it requires 50% of bond-holders’ approval to get a non-money provision approval, and furthermore making the 7% PIK maturing inside of the 6%, giving it de-facto seniority), or (b) threatening to seek Ch. 11 relief in absence of an exchange. Most of the times, the threat will not work. Often, debt-holders of troubled companies are not the original long-only purchasers, but rather professional vulture investors, and they will likely not rush to accept voluntary exchange offers.
There’s a tax disadvantage of an exchange offer for the debtor–Cancellation of Debt (COD) income arises when debt is canceled for less than its adjusted issue price (principal plus any unamortized discount/premium). Furthermore, the COD income is immediately recognizable as taxable income. To address this, the company can opt to reduce its tax attributes in the following order: NOLs, general business credits, minimum tax credits, capital loss carryover, basis in corporation’s property, passive activity losses, passive activity credits, and foreign tax credits. There’s also a tax disadvantage of the offer for the creditor if the exchange offer constitutes of securities (cash is rare), as the creditor is likely to have income as his OID accretes. Furthermore, this is the worst form of taxation as the creditor (a) pays tax at the maximum rate, (b) has no control on timing and (c) the event that gives rise to the tax does not give rise to cash to pay the tax with.
Ch.8 – Brief Review of Chapter 11 Process:
Codified in 11 United States Code (USC) the law of bankruptcy is detailed in several chapters, one of which is Chapter 11–Reorganization. The Ch. 11 process is useful to debtors for 4 reasons-
- No requirement to pay interest to unsecured creditors during the pendency of the case, and probably not as part of a POR
- Debtor can take advantage of the U.S. tax code (vs. restructuring outside the court)
- The automatic stay during the pendency of the case (secured creditors may petition court for relief from automatic stay)
- Availability of the post-petition DIP financing, which has a super-priority as an administrative expense
Most Ch. 11 proceedings are voluntary (Section 301), though creditors/indenture trustee may also begin proceedings under Section 303, even though this does not immediately put the debtor under bankruptcy and retains right to litigate whether it should be in bankruptcy.
Court Venue: Venue roles of 28 USC Section 1408 give options to debtors to select a district for bankruptcy filing (domicile, residence, location of principal place of business, location of principal assets). This leads to what’s called forum shopping and debtors tend to choose venues that are debtor friendly (e.g. Southern District of New York and Delaware). For example, debtors are routinely allowed to pay pre-petition unsecured claims of vendors deemed critical to re-organization, giving debtors considerable leverage over suppliers and increasing post-petition financing needs. This is why, from a timing perspective, to maintain control of where to file, the company will choose to file before it is in a material breach of an agreement that would creditors the right to do so.
Filing Date: The actual date of the filing is very important because it forms a bright line in the debtor’s operations—all claims incurred before are pre-petition and are lumped with all the unsecured claims, and on the other hand, post-petition claims are effectively senior to pre-petition claims.
Company Management: Usually management stays on the job after the filing but in rare cases, creditors may press for appointment of a trustee to oversee the day-to-day affairs of the company.
Parties in a Ch. 11 Process:
- Office of the U.S. Trustee: has an administrative role and primarily responsible for formation of official committee of unsecured creditors (consists of 7 largest unsecured creditors who are willing to serve) and any others, and to conduct a preliminary meeting
- Official Committee of Unsecured Creditors: after Ch. 11, U.S. Trustee solicits the 20 largest creditors to form the official committee cite above (typically consists 7 lenders; minimum is 3, and can be up to 11 in certain cases). Its role is to oversee DIP re-org/liquidation for the benefit of the unsecured creditors. The committee retains its own counsel and professionals, which are paid by the estate. Many larger investors decline to serve on this committee because they don’t want to receive non-public information (which will preclude them from trading); that said, the trustee has a fair amount of discretion in constructing a committee. Furthermore, if the creditors are also holders of secured debt, they’re rarely allowed to serve on this committee given the inherent conflict.
- Other Committees: In larger cases, other committees such as equity committee, committee for creditors with special claims (asbestos etc.) are formed, but the bias is to form one committee.
- Secured Creditors: These are grouped in classes according to the collateral by which their claim is secured. It’s a very active group that has a lien on a property owned by the DIP. This is the only class of investors that are likely to receive interest payments during bankruptcy, especially when their collateral is essential to the company’s operations. In cases where their claim is over-secured, they are entitled to their own counsel and advisors, paid for by the estate. Their activities include-
- Seeking relief of the automatic stay to foreclose on their pre-petition collateral
- Protecting pre-petition collateral
- Providing post-petition financing to the debtor
- Contesting plans for the re-org
- Receiving adequate protection payments (payments for declining value of the property against which they have a lien) when adequate equity cushion exists
Timing of POR: Upon filing for Ch. 11, the debtor has the exclusive rights to file for a POR (within 120 days) and seek approval (within 60 extra days, to a total of 180 days). These two periods cannot be extended by more than 18 months and (an additional 2 months for a total of) 20 months, respectively.
Administration of a Ch. 11 Process: The bankruptcy process has 4 main objectives:
- stabilize firm’s operations and provide immediate liquidity
- develop a go-forward business plan
- determine “legitimate” liabilities of the company and their priorities, and
- decide on a new capital structure.
Part 1 : To provide immediate liquidity, Ch. 11 allows for the following-
- Automatic Stay: Immediate benefit under Section 362 against acts of creditors. Upon filing, an estate is created and a debtor becomes the DIP. The DIP acts as a fiduciary, is in charge of the business and is accountable for the property and operations of the estate (section 541). The stay has a broad scope and gives the DIP time to propose a POR. The automatic stay limits the leverage of secured lenders and can be viewed as protecting interests of unsecured creditors.
- Adequate Protection: Company often still needs credit to function after filing Ch. 11. Now, at this stage, no one will lend to company unless they can do so on a secured basis. But, the problem that arises is that at this stage, the debtor has pledged all its assets to pre-petition secured creditors. So, to deal with this issue, the Bankruptcy Code allows the debtor, with court approval, to grant the DIP facility a super-priority interest in the debtor’s previously encumbered assets (essentially priming the secured creditors). To address this “sacrifice” of the pre-petition secured creditors requires the debtor to show that the original secured creditor is adequately protected. In exchange for giving up their ability to foreclose on their collateral, secured creditors are given “adequate protection”. Section 361 is very specific in that it provides adequate protection of an interest of an equity in property, not of having its claim repaid—thus this is valid only when there’s equity cushion exists. This can take form of additional/replacement liens, one-time or multiple cash payments (post-petition interest), an allowance of a super-priority claim, among others.
- DIP Financing: Despite the adequate protection provisions, to avoid the risk of being primed, the pre-petition secured lenders offer to be become DIP lenders. Section 364 allows for DIP financing, which can be a very safe and profitable business given super-priority claims of DIP financing. DIP financing also gives the participating pre-petitioning lenders affirmation/extension of their existing liens, and at times new liens (as part of a process known as a rollup).
- Critical Vendor Motion: Debtor may cite certain vendors as critical and request the court permission to pay these vendors their pre-petition claims to ensure their ongoing affiliation.
- Key Employee Retention Program: self-explanatory.
Part 2 : Developing a go-forwrad business plan is generally in control of the management, except for transactions outside the normal course of business (downsizing, asset sales, re-negotiating contracts etc.) –
- Asset Sales: Creditors often like asset sales, as they’re skeptical of management’s ability to manage the assets. Per section 363, when in Ch. 11, transactions outside the normal course of business can happen only after notice and hearing (court evaluates the use/sale of property taking into account the topic of adequate protection, and whether creditors’ protection is being impaired), and the burden of proof lies with the DIP. Asset sales take place as a competitive bidding process, after the debtor/court appoints a stalking horse bidder, after which the subsequent bidders are asked to pay 5-10% premium.
Part 3 : Determining Assets and Liabilities-
- Determining Assets: On the asset side, there are two key concerns—(a) voidable preference: any assets that were transferred in the 90 days before filing (1 year if the other party were an insider) can be brought back to the estate, and (b) fraudulent conveyance: a claim that the debtor did not receive fair value in a transaction with a 3rd party and thus threatens to unwound the transaction–something that is discussed far more than it is litigated. To avoid a fraudulent conveyance claim, debtors receive fairness opinion.
- Determining Liabilities: These are unperformed obligations with 3rd parties such as vendors. The executory contracts that are beneficial to the estate are assumed/assigned and others are rejected without court approval (section 365(a)). The most common form of executory contract is an unexpired lease. Clauses in these contracts that prohibit assumption/re-assignemnt are not enforceable on a DIP. When a DIP assumes a non-performing contract, it must cure the default or provider adequate assurance. If the contracts is rejected, the DIP is free from the 3rd party’s claim but the party can file an unsecured claim for the damages.
- Several important types of contracts have a higher standard for rejection, collective bargaining agreements and retiree benefit plans being among them.
- Tort liabilities: Bankruptcy code has the ability to consolidate and effectively value “tort” liabilities, as an unsecured claim (often a trust is formed to pay this out over time). Asbestos claims are such tort claims.
- Non-resi real estate leases are a special class of executory contracts. Damages for rejection are limited to 1 year’s rent or 15% of remainder of lease (not to exceed 3 years’ rent). The deadline for assumption of these unexpired leases is 210 days. If the lease is assumed and then rejected again, lessor can claim 2 year’s rent as an administrative claim. 3rd parties will often pay meaningful sums to assume below-market rent obligations, and thus, these leases can be an asset, if carefully deployed. If the debtor is keeping store and it’s a good lease, assume; if not, negotiate. If the debtor is closing the store, and if it’s a good lease, assign it; else, reject the lease.
- Avoidance Powers: Discourages debtors from favoring selected creditors. The 2005 BAPCPA Act expanded the reclamation rights of suppliers of goods. The supplier can now reclaim goods that were delivered within 45 days before the petition date (within 45 days of the petition date), or 20 days after the petition date (if the supplier missed the 45-day deadline). Even if the suppliers fails to make this written claim, it can assert an administrative claim (which as we know, is super-priority) within 20 days of the commencement of the case.
- Allowance of Claims: Interest on unsecured claims generally stop accruing post-petition, but is permitted to accrue on allowed secured claims (claims that are secured by property whose value is greater than the value of the claim).
Part 4: Deciding on a new capital structure-
Determining Valuation: As part of the confirmation process, two valuations are prepared—(a) liquidation analysis, and (b) going-concern EV. These are prepared by the debtor’s financial advisor.
Priorities of Payment in a Ch. 11 Process –
- Administrative Expenses: first priority insertion 507 (a)
- Wage and pension plan contribution claims (Priority Claims): arising within 180 days before the pre-petition date/cessation of debtor business, and only to the extent of $10k/per individual.
- Allowed unsecured claims of governmental units: limited to claims related to income, sales, property, withholding, employment, excise taxes, or customs duties
- Certain other de-facto priorities granted by the court: e.g. critical vendor payments (otherwise trade vendors wait in line along-with other unsecured claims). Southern District of New York and Delaware routinely allow for this.
- Secured claims
- Unsecured claims: get paid after all the above claims are paid in full, unless the senior creditors elect as a class to take less
Acceptance of a plan requires determining which classes of claims are eligible to vote, and further determining the required majorities needed to establish that a certain class of creditors have accepted the claim. Two classes are not solicited for their votes—(a) those who get nothing in the POR (such as sub debt) and are deemed to reject the plan and (b) those who are not impaired under the POR and are deemed to have accepted the plan. A class is deemed to have accepted the plan if 2/3rd of the amount and 1/2 of the number of actually voting claims accept the plan. Sub debt lenders who’re getting wiped out in the proposed plan may argue for a different valuation, and thus object to plan confirmation, and using this tactic, can get the senior debt holders to offer some equity to the subordinated lenders. Each of the classes need to have secured these votes for a POR to be confirmed as-is after the hearing.
After all the votes are in for the POR, the court holds a confirmation hearing. The confirmation hearing checks for a number of procedural items, plus certain other tests:
- best interests test: the creditors do not get less than what they’d get in a Ch. 7 liquidation
- good faith test: the code doesn’t define this, and is fairly difficult to use
- feasibility test: DIP will not liquidate or experience the need for another financial re-organization in future (colloquially called Ch. 22/33)
- cram down: if all the impaired classes have not accepted the plan, then the cram-down provision comes into play. In a cram-down confirmation of the POR, court asserts that the plan (a) does not discriminate unfairly, (b) the rejecting class gets more under the POR than it would under liquidation, and (c) if the rejecting class is getting less than the full value of its claims, the more junior class is not receiving any value at all.
Ch.9 – The Workout Process:
Participants and their differing needs and desires-
- Judge assigned for the Ch. 11 case is of paramount importance, on which the debtor has some control, given that they can decide on where to file.
- Banks are typically secured creditors who may even get interest payments if their claim is over-secured. If the secured creditors are adequately protected, they typically do not care whether the debtor can be re-organized or whether it goes through a liquidation–they have a strong preference for cash for form of consideration. Adequately secured claims tend to be re-instated with paid interest and damages (typically interest on interest).
- Trade claims are typically unsecured creditors except for (a) reclamation rights for goods shipped up to 45 days before filing and (b) critical vendor status
- General unsecured creditors: extremely sensitive about any expenses that reduce the value of the estate. also, are careful about classification if cram-down seems likely as making multiple classifications makes it easier to negotiate with other class of creditors vs. negotiating as a monolith group of unsecured creditors.
- Non-control vulture investors: care mostly about the immediate market prices
- Control vulture investors: have a continuing relationship with the debtor and hold controlling interest of the fulcrum security that will allow them to obtain controlling equity interests in the reorganized company. This requires such investors to do two things–(1) identifying the fulcrum security, and (2) buying enough of it to influence the re-org process. Accumulating a large position in these claims is done after the debtor files for Ch. 11. Members of the official committees have non-public knowledge and are restricted from trading the securities. When they are not restricted and they do sell their non-security claims, they seek to protect themselves from liability by contract by executing what are known as big-boy letters.
Firms filing for pre-negotiated/pre-pack Ch. 11s tend to be smaller (<~$200-300 mm), and/or with relatively simple capital structures. These are often used to bring about an exchange offer of public debt while leaving other classes unimpaired. Such exchange offers can be accomplished with 2/3rd the amount and 1/2 the claimants–this could not be accomplished outside the court because indentures require 100% participation of creditors, creating the typical holdout problem.
The typical pre-pack deal tends to happen as follows-
- obtain new exit financing from banks on normal commercial terms
- re-instate or repay old banks (except most will provide exit financing)
- re-instate trade creditors
- re-instate leases and other executory contracts
- issue 90-95% of common stock to former bond-holders
- issue 5-10% of stock to subordinated creditors
- if there’s a meritorious litigation pending, set up and finance a litigation trust and give common stock a small participation in lawsuit recoveries, if any
- issue option on 6-12% of the common stock to management with exercise price at re-org value per share
Leverage Factors in Ch. 11 Process-
- Leverage of Management over Creditors: (a) time, as the debtor has the exclusive right to file and get approval for a POR, and (b) money–compensation, entrenchment and KERPs-like incentive plans
- Secured Creditor’s Leverage: the first order of business for secured creditors after Ch. 11 filing is to seek lifting of the automatic stay so that they get their debt service resumed. There are two statutory grounds for lifting the stay w.r.t to the secured claims. The stay can be lifted for (a) cause, including the lack of adequate protection of the interest in the collateral, or (b) if the debtor does not have equity in such collateral and the collateral is not necessary for an effective re-org.
The valuation of collateral is very important–first of all, for determining to the extent the claim is secured, under-secured or over-secured (allows interest and damages), and second for determination of adequate protection payments (if the petition to lift the stay is denied). The lower the valuation of the collateral, the easier it is in principle to provide adequate protection payment. However, if the adequate protection approved by the court were to prove inadequate after the fact, the secured claim holder has a priority administrative claim for the deficiency.
- Leverage over Secured Creditholders: Although rarely used, courts have the discretion to subordinate any claim to other claims based on principle of equitable subordination (Section 510(c)(1)). Case history shows that equitable subordination is used to punish misconduct of holders of claims.
- Leverage over Unsecured Creditholders: Debtors have considerable leverage over unsecured trade vendors (because of critical vendor payments). Corporate structure plays an important role–e.g. trade claims at an operating sub will have priority over unsecured claims at the parent level, unless the sub guarantees parent’s debt. The court can eliminate intracompany claims by substantively consolidating the entities, but courts are usually reluctant to do so unless it can be shown that businesses were always operated as one entity (e.g. one BoD and no separate books/records).
Ch.10 & 11 – Valuation and Due Diligence:
On top of regular valuation of a company as an operating entity, one should also look at resource conversion valuation.
- NOLs: Can be carried back 2 years and 20 years forward, BUT the IRS Code limits the ability of the company to preserve its NOLs in face of change in ownership (debtors and stock-holders need to own >50% of the reorganized company’s stock, as one of the requirements), which is very likely to happen in a bankruptcy.
- Liquidation Valuation: Although not readily obvious, this is an important part of the Ch. 11 re-org because every class of claims must be served at least as well by Ch. 11 as by Ch. 7. In the example in the book (for Home Products International), authors used 60% recovery for A/R, 40% for inventory, 100% for land/building and 75% for equipment.
Documents filed in bankruptcy courts tend to be comprehensive and accurate. Public access is available to Southern District of NY through a service called PACER.
Ch.12 – Distress Investing Risks:
- Risks Associated with Alteration of Priorities
- Equitable Subordination: This is very rare (given the high burden of proof), and has three basic requirements–(a) creditor must have engaged in inequitable conduct, (b) conduct injured other creditors/gave the creditor an unfair advantage, and (c) subordination is not other inconsistent with the bankruptcy code. If someone is purchasing a claim, it is useful to know whether there’s equitable subordination proceeding against the original clam holder.
- Substantive consolidation (relatively rare): This can happen when there’s difficulty in segregating subsidiaries’ assets/liabilities, there’s benefit in administration upon consolidation and if it can shows that assets and business functions can be easily combined. Having said that, courts are required to respect separateness, mere benefit to case administration does not justify consolidation and given that it’s extreme and imprecise, is used rarely. Courts must prove a substantial identity b/w the entities to be combined and consolidation must avoid a clear harm or provide a clear benefit.
- Inter-corporate Credit Support and Fraudulent Conveyance Risk: Typically this happens when a Sub offers to support debt owed by the parent (can also happen in cross-stream guarantees, in addition to up-stream guarantees). But if the Sub doesn’t receive any benefit, then this will be challenged as a fraudulent transfer if this happens within 2 years of the date of filing.
- Critical Vendor Payments Risk: We have discussed this in detail above
- Defects in Perfection of Security Interests Risk: UCC financing statement needs to be filed accurately.
- Risks Associated with Collateral/Enterprise Valuation
- Collateral valuation: a low collateral valuation will make adequate protection payments more affordable to the debtor, BUT makes the secured creditors more likely to block a POR on account of its unsecured claim.
- Deterioration of collateral value: Questions of adequate protection and lifting of the automatic stay are the two most litigated items in bankruptcy. Granting of adequate protection to secured creditors is not automatic and is granted only after bringing a proceeding to lift the automatic stay. Secured creditors do this to enforce their rights to foreclose on the collateral (stay is lifted), or or to assure that their interest in collateral doesn’t diminish over time. The burden of proof that the secured creditors’ interest in the estate is adequately protect is with the debtor. If the debtor cannot prove that the secured creditors’ interest is protected, stay will be lifted or the debtor will have to provide adequate protection payments to continue to use the collateral.
- Enterprise Valuation Risks: Form of consideration is important not only to the creditors but also to the debtor as it dictates how feasible the POR will be post-reorg.
- Reorganization Risks
- Other Risks
- Classification / Cram-down: A class of creditors may have a blocking position but this is threatened by the possibility of a cram-down plan.
- Uncontrolled Professional Costs
Ch.13 – Form of Consideration vs. Amount of Consideration:
From the point of reorganization participants, form of consideration (sr. debt vs. equity) is frequently as important as the amount of consideration. Banks and insurance companies tend to have a strong desire for cash, or well-covenanted cash-pay senior instruments (for obvious regulatory and economic purposes).