A finished FIN-660 Topic 4 distress stage assessment example, screening with an Altman Z-score, measuring covenant headroom and maturity, and recommending an amend-and-extend plus an asset sale now. Searches like "fin 660 topic 4 assignment example", "fin660 topic 4 sample" and "fin-660 topic 4 example" land here.
What a finished FIN-660 Topic 4 distress stage assessment looks like
The finished assessment reads the supplier's position three ways, all in illustrative millions. Covenant headroom comes first: net debt of 820 over EBITDA of 200 gives 4.1 times, so a 9 percent fall in EBITDA, to 182, would breach the 4.5 limit. Maturity comes second: the 400 term loan is due in twenty months, and the case says lenders now refinance only below 4.0 times. Edward Altman's Z-score, computed from five ratios covering liquidity, accumulated profit, operating return, market cushion and asset turnover, comes to about 1.90, just above the 1.81 line where the original model's distress zone begins. The assessment then lays out four stages of decline and the options that survive into each, and shows how quickly the list shortens once a covenant is broken.
How a FIN-660 Topic 4 example is structured
Screen, measures, stages and recommendation are the assessment's four parts. The screen section computes the Z-score with each ratio shown, and notes that the original model was estimated on public manufacturers, which this supplier resembles, so its cutoffs are used as a warning rather than a verdict. The measures section sets covenant headroom, months to maturity and liquidity, cash of 60 plus 90 of undrawn revolver, beside one another. A stage table follows: headroom intact, covenant breached, maturity inside twelve months without refinancing, and a court process, with the options available in each. A passage applies Stewart Myers's debt overhang argument to explain why new equity becomes hard to raise once creditors would capture most of its benefit. The recommendation pairs an amend-and-extend with the sale of a non-core unit for 100, cutting leverage to about 3.89 times. It is defended against waiting for the auto cycle to recover.
A screen read as a warning
A Z-score near 1.90 sits just above the original model's 1.81 distress line, which the assessment treats as a prompt for closer measures, not a diagnosis.
Headroom of nine percent
An EBITDA decline of 9 percent, smaller than the supplier's last two downturns, would take leverage past the 4.5 covenant.
Four stages, a shrinking list
With headroom intact the firm can amend, sell, raise equity or cut spending; after a breach lenders set terms, and inside twelve months of maturity little remains.
Why equity disappears as an option
Once creditors would capture most of any new equity's benefit, holders decline to fund even sound projects, the underinvestment Myers described.
Acting now, defended against waiting
An amend-and-extend plus a 100 unit sale brings leverage to about 3.89 times, while waiting for the auto cycle bets the options on a recovery nobody controls.
Where marks go in FIN-660 Topic 4
Assessments that recognize distress only when a covenant has already broken score lowest, because by then the options this topic asks about belong to the lenders. Papers that report the Z-score as a verdict, without noting the population the model was built on, give a screening tool more authority than it has. Headroom stated as a ratio, with no translation into how far EBITDA can fall, hides how thin the margin is. Ignoring the maturity date treats a refinancing that markets may refuse as routine. An equity raise proposed after the breach overlooks debt overhang, which makes holders unwilling to fund a recovery creditors would largely capture. Recommending patience without pricing what each quarter of waiting removes from the list leaves the board choosing delay by default.
Get a FIN-660 Topic 4 example written to your instructions
Send the FIN-660 Topic 4 instructions and the rubric listed in your classroom, with the company's figures your section supplies. We write a custom example to them, with a distress screen, headroom translated into an EBITDA decline, maturity and liquidity measured, the options mapped stage by stage and a course of action defended against waiting, in 24 to 48 hours. The first one is free.
FIN-660 Topic 4 questions, answered
What is the Altman Z-score?
A weighted combination of five financial ratios that Edward Altman developed to separate manufacturers that went bankrupt from those that did not: working capital, retained earnings and operating profit each scaled by total assets, market value of equity over total liabilities, and sales over total assets. Low scores signal elevated risk. Later versions adapt the weights for private and non-manufacturing firms, so the version must match the company.
What is debt overhang?
A problem Stewart Myers identified: when a firm's debt is large relative to its value, much of the gain from any new investment goes to creditors, whose claims become safer, rather than to the shareholders who would fund it. Holders may therefore refuse to put in new equity even for a sound project. That is why the assessment treats an equity raise as realistic only before a breach.
Does the assessment say whether an actual company is in distress?
No. The supplier, its ratios, the covenant and the refinancing threshold are composites, picked so that each measure and stage shows clearly. Judging a real company's position requires its audited statements, loan documents, lender relationships and advice from restructuring professionals, and nothing here should inform a decision about a real security. The assessment is FIN-660 coursework on reading distress early.