Case Study of Bankrupt and Restructuring at Marvel Entertainment Group
1) Why is Marvel in financial distress? Bad luck? Bad strategy? Bad implementation? When possible, back your claims with numbers.
There are several financial problems that compromise Marvel’s financial distress. Each problem can be explained by one or several reasons. • Overcollateral: The first financial problem of Marvel is that huge amount of shares are collateralized as its holding companies’ debts. These debts were secured by 77.3 million shares in total, accounting for 75.9% shares of Marvel as a whole.
Issue Company Marvel Holding Inc. Marvel Parents Holding Inc. Marvel III Holding Inc. Amount ($ Million) 517.4 251.7 125 Due 1998
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However, in the vote after filing for Chapter 11, gaining support from only a majority of the claimants in each creditor class is easier than from everyone. b. Making holding companies debt holders less active: dispersed holding companies’ debt holders appeared to be active because of their representative, Paul Irans. In the out‐court scenarios, the active dispersed creditors were more likely to participate in reorganization plan. However, by filing Chapter 11, Perelman provided to the creditors only the choice between approval & gain little and disapproval & gain nothing. c. Solve the debt holders’ holding problem: In out‐court settlement scenario, each one of the debtors’ voting is vital to the settlement and each of them has the incentive to behave opportunistically and hold their vote until he/she is the last voter, waiting the shareholders to pay premium to buy his/her vote. While in Chapter 11 bankrupt scenario, only a majority of the claimants in each creditor class is required. Debtors were not so much vital and had less incentive to holding. d. Gain support from Marvel’s unsecured debt holders: the unsecured creditors, who would be fully paid, of course approved for it, too. When it comes to the debtors, the pending treat of liquidation helps to solve the hold out problem and behave less opportunistically.