Financial distress

Short description: State of being unable to repay the creditors of a company

Insolvency

Insolvency processes

* Administration
* Bankruptcy
* Chapter 7 (US)
* CVA
* Conservatorship
* Dissolution
* Examinership
* IVA
* Liquidation
* Provisional liquidation
* Receivership

Officials

* Insolvency practitioner
* Tribunal
* Regulatory agency
* Liquidator
* Referee in Bankruptcy
* Trustee in bankruptcy

Claimants

* Creditor
* Preferential creditor
* Secured creditor
* Unsecured creditor

Restructuring

* Administration (UK)
* Chapter 11 (US)
* Cram down
* Restructuring
* Scheme of arrangement

Avoidance regimes

* Fraudulent conveyance
* Undervalue transaction
* Unfair preference
* Voidable floating charge

Offences

* Fraudulent trading
* Misfeasance
* Trading while insolvent
* Wrongful trading

Security

* Floating charge
* Lien
* Mortgage
* Second lien loan
* Security interest

International

* Chapter 15 (US)
* Cross-border insolvency
* Insolvency Regulation
* UNCITRAL Model Law

By country

* Australia
* BVI
* Canada
* Cayman
* China (Hong Kong)
* India
* Ireland
* Russia
* Switzerland
* United Kingdom
* United States

Other

* Anti-deprivation rule
* Bankruptcy alternatives
* Creditors' rights
* Chapter 9 (US)
* Debtor
* Default
* Financial distress
* History of bankruptcy law
* List of bankrupts
* Pari passu
* Pre-packaged insolvency
* Sovereign default
* Subordination

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Financial distress is a term in corporate finance used to indicate a condition when promises to creditors of a company are broken or honored with difficulty. If financial distress cannot be relieved, it can lead to bankruptcy. Financial distress is usually associated with some costs to the company; these are known as costs of financial distress.

## Contents

* 1 Cost
* 2 Options for relieving financial distress
* 3 References
* 4 External links

## Cost

A common example of a cost of financial distress is bankruptcy costs. These direct costs include auditors' fees, legal fees, management fees and other payments. Cost of financial distress can occur even if bankruptcy is avoided (indirect costs).

Financial distress in companies requires management attention and might lead to reduced attention on the operations of the company. Similarly liquidity, profitability, asset productivity, activity, and solvency is major cause of corporate financial distress.[1]

Another source of indirect costs of financial distress are higher costs of capital as usually banks increase the interest rates if a state of financial distress occurs.

## Options for relieving financial distress

If high debt burden is the cause of financial distress, the company can undergo a debt restructuring. If operational issues are the reason for the distress, the company can negotiate a payment holiday with its creditors, while improving operational efficiency so as to be able to service its debt. If the latter improvements are insufficient, the company may engage in the more extensive turnaround management. See Valuation (finance) § Valuation of a suffering company for discussion.

## References

1. ↑ Amoa-Gyarteng, Karikari (2021-11-07). "Corporate Financial Distress: The Impact of Profitability, Liquidity, Asset Productivity, Activity and Solvency" (in en). Journal of Accounting, Business and Management (JABM) 28 (2): 104–115. doi:10.31966/jabminternational.v28i2.447. ISSN 2622-2167. https://journal.stie-mce.ac.id/index.php/jabminternational/article/view/447.

## External links

* Indicators and Sources of Financial Distress
* Predicting Financial Distress of Companies: Revisiting the Z-Score and Zeta Models by Edward Altman
* Financial Distress, Bankruptcy Law, and the Business Cycle by Javier Suarez and Oren Sussman
* Insolvency Service website
* Probability of bankruptcy screener for public companies based on Altman Z Score

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Corporate finance and investment banking

Capital structure|

* Convertible debt
* Exchangeable debt
* Mezzanine debt
* Pari passu
* Preferred equity
* Second lien debt
* Senior debt
* Senior secured debt
* Shareholder loan
* Stock
* Subordinated debt
* Warrant

Transactions
(terms/conditions)|

| Equity offerings|

* At-the-market offering
* Book building
* Bookrunner
* Bought deal
* Bought out deal
* Corporate spin-off
* Equity carve-out
* Follow-on offering
* Greenshoe
* Reverse
* Initial public offering
* Private placement
* Public offering
* Rights issue
* Seasoned equity offering
* Secondary market offering
* Underwriting

|

Mergers and
acquisitions|

* Buy side
* Control premium
* Demerger
* Divestment
* Drag-along right
* Management due diligence
* Managerial entrenchment
* Minority discount
* Pitch book
* Pre-emption right
* Proxy fight
* Post-merger integration
* Sell side
* Shareholder rights plan
* Special-purpose entity
* Special situation
* Squeeze-out
* Staggered board of directors
* Stock swap
* Super-majority amendment
* Tag-along right
* Takeover
* Reverse
* Tender offer

Leverage|

* Debt restructuring
* Debtor-in-possession financing
* Financial sponsor
* Leveraged buyout
* Leveraged recapitalization
* High-yield debt
* Private equity
* Project finance

Valuation|

* Accretion/dilution analysis
* Adjusted present value
* Associate company
* Business valuation
* Conglomerate discount
* Cost of capital
* Weighted average
* Discounted cash flow
* Economic value added
* Enterprise value
* Fairness opinion
* Financial modeling
* Free cash flow
* Free cash flow to equity
* Market value added
* Minority interest
* Modigliani–Miller theorem
* Net present value
* Pure play
* Real options
* Residual income
* Stock valuation
* Sum-of-the-parts analysis
* Tax shield
* Terminal value
* Valuation using multiples

* List of investment banks
* Outline of finance

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