Nov
8
“As a quick summary, and this is a broad based statement, but I am going with it: If a lien is shown to be “fraudulent”, that lien is effectively worthless. That means a secured creditor would now be an unsecured creditor. This is important because now instead of getting a piece of the pie after the secured lenders get paid off, everyone gets their fair share […] Say a company has $100M in assets. This company also has $100M in debt secured against those assets and $100M of unsecured debt. With a simple bankruptcy waterfall we see that the secured lenders will get 100% of their claim ($100M of assets / $100M of secured debt) and unsecured creditors will get 0% of their claim ($0M of remaining assets / $100M of unsecured claims). ¶ Now lets say those liens are worthless. The $100M of assets would now be split between $200M of unsecured claims ($100M voided secured debt + $100M of unsecured debt) with a recovery of 50 cents on the dollar for each. With liens, unsecured lenders are getting donuts. Without the liens, they are getting 50 cents on the dollar back.”
Distressed Debt Investing: Fraudulent Conveyance
