A Practical Guide to Bankruptcy Valuation, 2nd Edition

Dr. Israel Shaked and Robert F. Reilly

A Practical Guide to Bankruptcy Valuation, 2nd Edition


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A Practical Guide to Bankruptcy Valuation provides practical guidance on the valuation of a business, business ownership interest, security, or intangible asset within a bankruptcy context.

Published by the American Bankruptcy Institute, the revised and expanded second edition of A Practical Guide to Bankruptcy Valuation contains a wealth of information on how solvency and capital adequacy analyses, creditor-protection issues, debtor-in-possession financing, fraudulent conveyance and preference claims, restructuring of debtor securities, sale of bankruptcy estate assets, plans of reorganization, bankruptcy taxation issues and fresh-start accounting issues, among others, are factored into properly valuing a bankrupt company.

Interspersed with helpful charts and hypothetical examples, this manual describes the generally accepted approaches for valuing the assets and securities of a financially troubled business. It also provides professional guidance to troubled-company managers, debt-holders and other creditors, equity-holders and investors, bankruptcy counsel, juridical finders of fact and other parties to a bankruptcy proceeding, including those called upon to be expert witnesses in bankruptcy cases.

Based on the authors' combined 75 years of experience in the valuation field, A Practical Guide to Bankruptcy Valuation, second edition, lays a solid foundation for those seeking a better understanding of valuation within the bankruptcy context.


Chapter 1: General Business Valuation Issues

A. Elements of the Bankruptcy Valuation
B. Business Valuation Due Diligence Procedures
C. Warning Signs of Financial Distress
D. A Checklist for the Review of a Solvency Opinion
E. Bankruptcy Analyst Caveats
F. Nonsystematic Business Valuation Adjustments
G. Valuing the Financially Distressed Company
H. Case Studies in Corporate Bankruptcy Valuation

Chapter 2: The Fair Market Value Standard of Value

A. FMV and Going-Concern Value Compared: An Expert's Perspective
B. Understanding Fair Market Value in Bankruptcy

Chapter 3: Market Approach Valuation Methods

A. Fundamentals of the Market Approach
B. Reliance on M&A Transaction Pricing Multiples: Reasons Why Acquirers Overpay
C. Guideline Company Valuation Methodology: Details Often Overlooked
D. Playing the Market (Approach): Going Beyond the DCF Valuation Method

Chapter 4: Income Approach Valuation Methods

A. The Foundations of Discounting: Time Value of Money
B. Discounted Cash Flow Valuation: The Basics
C. Solvency Analysis: A Primer on Applying the Discounted Cash Flow Method

Chapter 5: Income Approach-Estimating the Cost of Capital

A. Fundamentals of the Cost of Capital
B. A Primer to Cost of Capital for the Distressed/Bankrupt Company
C. Cost of Capital: Company-Specific Risk Premium
Chapter 6: Asset-Based Approach Valuation Methods
A. The Asset-Based Approach to Business Valuation
B. The Asset-Accumulation Method
C. The Adjusted Net Asset Value Method

Chapter 7: Valuation Discounts and Premiums

A. Measuring the Discount for Lack of Marketability in Debtor Company Business Valuations
B. Measuring the Discount for Lack of Marketability for Debtor Company Security Valuations
C. Liquidity and Control: Valuation Discounts and Premiums and the Debtor Company

Chapter 8: Valuing the Distressed or Bankrupt Fraud-Plagued Company

A. Had the Information Been Known: Lessons from the Enron Insolvency
B. Quantifying the Impact of Fraud
C. Judging Fraud: The Case of Relying on Wrong Information Valuation of Closely Held Debtor Company Stock

Chapter 9: Valuation of Special Properties and Industries

A. Health Care or Pharmaceutical Company Valuation
B. Real Estate Appraisal Report Guidance
C. Personal Property Appraisal Report Guidance
D. Property Appraisal Due Diligence Procedures
E. The Valuation of NOLs in a Bankruptcy Reorganization

Chapter 10: Valuation of Debtor Company Goodwill

A. Goodwill Valuation
B. Debtor Company Goodwill Allocation
C. How Good Is Goodwill?

Chapter 11: Valuation of Debtor Company Intangible Assets

A. Structuring the Intangible Asset Valuation
B. The Identification of Intangible Assets
C. The Valuation of Intangible Assets
D. Intellectual Property Valuation
E. Market Approach Intellectual Property Valuation Methods
F. Customer Intangible Asset Valuation
G. Contract Intangible Asset Valuation
H. Technology Intangible Asset Valuation
I. Computer Software Valuation
J. Effective Intangible Asset Valuation Reports

Chapter 12: The Role of Projections and Uncertainty in Valuation

A. Cornerstone of Financial Decision-Making: Credible Projections
B. Role of Uncertainty in Determining a Distressed Company's Fate
C. Decision Trees for Decision-Makers

Chapter 13: The Leverage Effect: Compounds Success and Accelerates Death

A. Debtor Beware: Double-Edged Sword of Financial Leverage
B. Operating Leverage: The Often-Overlooked Risk Factor

Chapter 14: Bankruptcy Valuation Hearings

A. The Mirant Valuation Saga: Epic Battle of Experts
B. Bankruptcy Valuation Hearings: As Highly Contested as Ever

Chapter 15: Bankruptcy-Related Tax and Accounting Issues

A. Income Tax Consequences of Debt Modifications
B. Tax Status Considerations for the Reorganized Company
C. Earnings: Quality vs. Quantity

Chapter 16: Bankruptcy Valuations for Special Purposes

A. Fraudulent Transfers and the Balance Sheet Test
B. Reasonableness of Shareholder/Executive Compensation Analyses
C. Structuring the Debtor Company Sale Transaction
D. Analyst Guidance Related to Bankruptcy Valuation Reports and Expert Testimony