Deloitte 15 - 5 Essay

1106 Words Jun 26th, 2016 5 Pages
Case 15-5
Trouble at the Resort
Resort Co. (the “Company”) is a private company that operates luxury hotel properties.
As of December 31, 2010, Resort Co. had $432 million in uncollateralized term loans
(the “Original Debt”) outstanding with two lenders, Bank A ($129.6 million) and Bank B
($302.4 million). Note that these are not participating loans. Further, issuance costs associated with the Original Debt in the amount of $3 million remained unamortized as of
December 31, 2010 ($900,000 and $2.1 million for the loans held by Bank A and Bank
B, respectively).
As a result of lower than expected travel during the holiday season, the Company projected a short-term cash flow shortage and would not be able to meet the short-term
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The table below summarizes the total consideration exchanged between the debtor and creditors as part of the Restructuring on January 1, 2011:
Cash Inflow/(Outflow)
Prepayment from sale of property
Prepayment from issuance of New Term Loan
Cash fees paid to Bank A for Restructuring
Proceeds from New Term Loan
Noncash Inflow/(Outflow)
Fair value of equity issued on January 1, 2010

Bank A
(75,000,000)
(5,000,000)
(1,000,000)
Bank A
-

Bank B
(175,000,000)
15,000,000
Bank B
(30,000,000)

Total
(250,000,000)
(5,000,000)
(1,000,000)
15,000,000
Total
(30,000,000)

Net inflow (outflow)

(81,000,000)

(190,000,000)

(271,000,000)

Finally, in exchange for services provided in executing the Restructuring, the Company paid accounting and legal advisors certain fees in the amount of $500,000 ($150,000 allocated to Bank A, and $350,000 allocated to Bank B).
The Company calculated the present value of the cash flows under the terms of the new debt and the remaining cash flows under the original agreement on a creditor-by-creditor basis. Further, the Company used the same discount rate to calculate the present value of the cash flows under the terms of the new debt and the remaining cash flows of the
Original Debt, which was equal to the effective interest rate of the Original Debt
(approximately 5 percent for both Bank A and Bank B). The present value

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