OK, this will take absorbing the long link below.
http://www.ogfj.com/articles/print/volu ... tcies.htmlToo much to summarize but here's a pertinent portion of the report titled: "
Rising oil prices may mean more bankruptcies""Private equity investors and other sophisticated parties (such as institutional bondholders) understand that rising commodity prices are an opportunity and that Chapter 11 bankruptcy may provide the means to take control of the debtor and to maximize the future upside value that will be realized if prices continue to rise."
As an example recall the story of Halcon. After the Chapter 11 agreement with the creditors 96% of the stock was transfered to those creditors. This eliminated more then $1 BILLION in debt and produced an $600 million asset based credit line. The new owners/creditors then sold Bakken assets for $1.4 BILLION which produced an 18% increase in stock value. The 96% of the stock now owned by the former creditors.
And what is Halcon up to these days? Getting heavy into the Permian Basin which has become red hot in the last year.
Subject to how that effort turns out and oil/NG prices in a few years the value of that 96% of the stock might be several times larger then the debt it was traded for.That's what the report explains: a developing incentive for creditors to push damaged companies into Chapter 11 "debtor-in-possession" reorganizations. And the great advantage the former creditors have available:
"Debtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law, such as Chapter 11 bankruptcy. Usually, this debt is considered senior to all other debt, equity, and any other securities issued by a company — violating any absolute priority rule by placing the new financing ahead of a company's existing debts for payment.
It may be used to keep a business operating until it can be sold as a going concern, if this is likely to provide a greater return to creditors than the firm's closure and a liquidation of assets. It may also give a troubled company a new start, albeit under strict conditions. In this case, "debtor in possession" financing refers to debt incurred while in bankruptcy, and "exit financing" is debt incurred upon emerging from reorganisation under bankruptcy law."
Which explains how Halcon, a busted company, probably got a brand new shiny $600 MILLION credit line.