Debt?

[FirstConsul]

Let's say Company XYZ has
$1 billion in assets, producing $100 million in EBITDA
$2 billion in bank debt(no idea how it got there, maybe Nick Leeson blew it up)
at a 20% junk interest rate.
Obviously, it would go into bankruptcy the first year.
However, I'm interested as to how much the debt would sell for on the open market?(I bet you could calculate it, wallstgolfer? )
Let's say it sells for 20 cents on the dollar, then you buy it for $400 million.
How would the debt be restructured? Isn't it possible to make money in any case now? Since you could just charge 10% interest on $500 million and still be profitable. Why would debt sell for pennies on the dollar unless the borrower was unprofitable and bankrupt?

[WallStGolfer31]

Originally Posted by FirstConsul

Let's say Company XYZ has
$1 billion in assets, producing $100 million in net income
$2 billion in bank debt(no idea how it got there, maybe Nick Leeson blew it up)
at a 20% junk interest rate.
Obviously, it would go into bankruptcy the first year.
However, I'm interested as to how much the debt would sell for on the open market?(I bet you could calculate it, wallstgolfer? )
Let's say it sells for 20 cents on the dollar, then you buy it for $400 million.
How would the debt be restructured? Isn't it possible to make money in any case now? Since you could just charge 10% interest on $500 million and still be profitable. Why would debt sell for pennies on the dollar unless the borrower was unprofitable and bankrupt?

I'm not sure what you are asking?

The price of debt is varible to many factors mainly based on the all encompasing debt-agency rating and the ratings avg spread above treasuries. Bankrupt issues have low low durations and follow more company news than spreads over treasuries for obivious reasons.

Where are you getting these numbers? Where did a 10% interest rate come from after it was stated they had a 20% interest rate? And where did debt selling for 20 come from?

[WallStGolfer31]

Originally Posted by FirstConsul

Made them up from thin air .
Just wondering
1)how debt is restructured(the principles)
2)why nonperformingloans sell for pennies on the dollar

restructuring is just redenfing terms in the indenture, that's all.....

They sell well under par (I prefer saying well under par, bc cheap sleazy loan companies & lawyers on TV use the slogan "pennies on the dollar") becasue they are nonpreforming, they in lots of cases wont get paid, and if they do, why would they be worth more than even 50? You know how bonds are valued, cut out a few coupon payments,and you've F'd up getting to par by quite a bit.

[WallStGolfer31]

Due to a edit by FC this wuestion was not needed