A finished FIN-660 Topic 6 recovery waterfall analysis example, applying absolute priority across a valuation range, locating the fulcrum security and recommending a prepackaged plan over an exchange offer. Searches like "fin 660 topic 6 assignment example", "fin660 topic 6 sample" and "fin-660 topic 6 example" land here.
What a finished FIN-660 Topic 6 recovery waterfall analysis looks like
Four layers of claim, in illustrative millions, open the finished analysis: a secured term loan of 350, unsecured notes of 400 and 50 of unsecured trade and lease claims ranking with the notes, then the old equity. At the advisers' midpoint value of 600, absolute priority pays the term loan in full and leaves 250 for 450 of unsecured claims, about 55.6 cents on the dollar, with nothing for equity. The analysis then reruns the waterfall across the range. At 500 the unsecured recovery falls to about 33 cents; at 800 it reaches par and equity still receives nothing; only above 800 does equity recover. The notes are the fulcrum at every value below 800, so they are likely to own the reorganized company, and the analysis reads each class's valuation argument from that position.
How a FIN-660 Topic 6 example is structured
Claims, values, waterfall and plan are the analysis's four parts. A claims table lists each class with its amount, its collateral and its rank, and notes that the trade and lease claims sit alongside the notes. The valuation section gives the advisers' range, since the range is where the negotiation happens. The waterfall is run at 500, 600, 800 and 850, showing recoveries by class at each value. A leverage section reads the valuation arguments: noteholders taking the new equity favor a low value that shuts out juniors, while the old equity argues for a value above 800 that would keep it in the money. A deviations paragraph describes, without figures, two ways plans commonly depart from strict priority, payments to critical suppliers and small grants to old equity to avoid a valuation fight. The recommendation weighs an out-of-court exchange, exposed to holdouts, against a prepackaged plan that binds them.
Claims ranked before any value
A secured loan of 350 ranks first, notes of 400 and trade and lease claims of 50 share the next tier, and old equity stands last.
Absolute priority at the midpoint
At 600 the term loan recovers in full, unsecured claims receive about 55.6 cents on the dollar and equity is wiped out.
A fulcrum that decides the outcome
Because the notes are only partly covered anywhere below 800, they are the class whose claims are likely to convert into ownership of the reorganized retailer.
Each class argues its own value
Noteholders taking the new shares favor a low value that shuts out old equity, while old equity needs a value above 800 before it recovers anything.
A prepackaged plan against an exchange
An exchange offer needs near-unanimous participation and rewards holdouts, while a prepackaged plan binds a class once two-thirds in amount and a majority in number of those voting accept.
Where marks go in FIN-660 Topic 6
A waterfall run at one valuation and presented as the answer earns the least credit here, because the loss is allocated by whichever value the parties settle on, and the range is the negotiation. Papers that let the old equity recover while the notes are impaired ignore absolute priority without saying why a plan might depart from it. Leaving trade and lease claims out of the unsecured tier overstates what noteholders receive. Failing to identify the fulcrum security misses which class holds the leverage and will end up owning the company. Recommending an exchange offer without addressing holdouts proposes a deal the nonparticipants can ride for free. Deviations from priority described as unfair, rather than as prices paid to keep suppliers shipping or to avoid litigation, miss why they happen.
Get a FIN-660 Topic 6 example written to your instructions
Send the FIN-660 Topic 6 instructions and the rubric attached in your classroom, with the claims and valuation your section's case provides. We write a custom example to them, with claims ranked, the waterfall run across the valuation range, the fulcrum identified, each class's position read and a restructuring path defended against its alternative, in 24 to 48 hours. The first one is free.
FIN-660 Topic 6 questions, answered
What is a fulcrum security?
The most senior class of claims that is not paid in full at the likely enterprise value. Classes above it recover everything and classes below it recover little or nothing, so the fulcrum class is where the loss lands and usually the class that receives the reorganized company's equity. In the example the unsecured notes are the fulcrum at any value below 800, which is why their holders drive the negotiation.
Why do plans sometimes depart from absolute priority?
Because strict priority can cost more to enforce than to relax. Suppliers a retailer cannot replace may be paid in full to keep goods arriving, and old equity is sometimes given a small stake or warrants so it will not contest the valuation and delay the case. Those deviations are paid for by the fulcrum class, which accepts them when litigation or a supply disruption would cost it more.
Is the analysis advice for a real restructuring?
No. The retailer, its claims, the valuation range and the plan terms are composites, and the description of bankruptcy voting is general coursework rather than legal guidance. A real restructuring turns on the actual loan and indenture terms, a contested valuation, the court and the advice of restructuring counsel and bankers. The analysis demonstrates the loss allocation FIN-660 expects reasoned through, and it advises no creditor, holder or company.