Pre Exam CICC Day 3

What is the objective of practising emotional detachment during negotiations in a distress situation?

• To remain indifferent to the outcome of negotiation.

• To not reveal your thoughts to the other stakeholders.

• To set boundaries about what you will and will not tolerate from others.

What is the purpose of a cash sweep arrangement?

• It calculates the borrower's cash reserves.

• It lists the borrower's cash receipts and payments.

• It ensures that all excess cash is automatically used to repay debt.

What information about a borrower can be obtained by reviewing assets or security registers?

• Whether the company has any rights of set-off.

• Whether there are charges against the borrower's assets.

• Information about the company's directors.

How should the price be set for equity warrants issued to private equity sponsors in a restructuring, and why?

• The price of the warrants should be set significantly higher than the value of the shares today, so that the warrant holders will benefit only if the performance of the borrower improves materially.

• The price of the warrants should be set equal to the value of the shares today in the interest of fairness to all the stakeholders.

• The price of the warrants should be set significantly higher than the value of the shares today, so that the private equity sponsors have sufficient incentive to cooperate in the restructuring process.

What are the steps to be taken when developing an action plan?

• 1. Determine the company's right to exist; 2. Determine whether the stakeholders are willing to participate in the solution; 3. Build a credible plan; 4. Ensure that the road map and structure are consistent with the previous three steps.

• 1. Determine if the company is viable; 2. Determine whether the stakeholders are willing to be part of the solution; 3. Build a cash flow projection and revise the cash flow position of the business; 4. Make sure that the road map and structure are consistent with the first three steps.

• 1. Determine if the company is viable; 2. Determine whether the stakeholders are willing to be part of the solution; 3. Assess the cashflow position of the business; 4. Plan for the worst-case scenario; 5. Make sure that the road map and structure are consistent with the first four steps.

What is one of the steps a supplier can take to safeguard their interest when supplying to a company in distress?

• Renegotiate the credit terms and extend more credit period.

• Renegotiate the credit terms and ask for security.

• Have a retention-of-title clause in supply contracts.

Under what circumstances would additional lending be considered during restructuring?

• When the lender wants to preserve capital because of pressure on the business’s profitability.

• When there is a clearly identifiable source of repayment over which the lender has priority.

• When the borrower has no other sources to inject funds needed for revival.

Why is liquidation rarely used for large companies?

• There is typically some part of the company that can be made viable through a restructuring process.

• Favourable judicial outcomes are rare, because to the prospect of large-scale job losses.

• Large companies have enough resources to contest and stall liquidation process.

Which option describes the competitive approach to negotiations in a distress situation?

• It is a lose-lose approach.

• It is a win or lose approach.

• It is a win-win approach.

What is the objective of practising emotional detachment during negotiations in a distress situation?

• To set boundaries about what you will and will not tolerate from others.

• To remain indifferent to the outcome of negotiation.

• To not reveal your thoughts to the other stakeholders.