When the subordinate debt schedule can be eliminated from the underlying value of business operations, transactions are streamlined because incentives are created for all parties.
Leveraging the strategic Article 9 short sale liquidates business assets into a new purchasing entity, preserving the continuity and full ongoing concern value of a target acquisition.
Sellers are incentivized with a path to a successful exit, where one did not previously exist. This is because the purchaser can enter at the attractive cost of liquidated asset valuation and thus strategically allocate value back to the seller in order to reconcile personal guarantees. The first position creditor recovers their appraised value on the collateral quickly, without the need for auction.
For the PEG professional, deals can be assessed without regard to the debt schedule, because the strategic Article 9 reorganization eliminates the need for complex short sales, subordinate creditor consents, or Chapter 11 / 363 sales.
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– Asset purchasing offers something unique In that you’re able to buy a business Only through the purchase of the assets, Which ensures that you don’t acquire All of the liabilities and
the skeletons in the closet. No matter how good we are at underwriting, How efficient we are at due diligence, Doesn’t matter if we interview
every single employee, Call every single client, You don’t know what you don’t know And there’s no way to be certain That you’ve uncovered every rock. That’s why asset acquisition
makes a whole lot of sense But even in that context, There are problems and
issues that are present. For example, in the context
of a distressed business, It’s likely that they’re gonna
have a number of creditors. Otherwise they wouldn’t be in distress. Every single one of those creditors Could file a UCC1 Financing Statement Or a blanket lien on the company’s assets. Well, every single one of
those liens follow the assets Which means that even if they’re sold, Those liens still exist. As an asset acquirer, you still have to be Cognizant and aware that every
single one of those liens Are resolved in the
purchase of those assets. The problem is that’s inefficient. There’s a better way to
go about the purchasing Of business assets that assures
that all of the skeletons Are left behind and that every
single one of those debts, Every single one of those liens, Those UCC1 Financing
Statements are eliminated And that way, that process, is called
An Article 9 Transaction. Article 9 also derives from the UCC And it provides a mechanism
to purchase assets Through a controlled short-sale Through the first position creditor. So rather than going down the list And asking permission
from every single party That has a lien on the
assets to conduct this sale, You only have to ask
permission and negotiate With the first position creditor. This is extremely logical If you break it down for
the following reason: If the company closes its doors
and liquidates everything, The chances that those
assets, used business assets, Are worth anything or
worth anything significant, Is very small. Which means that to the extent That the first position
creditor is not paid in full Based on the sale of those assets, None of the subordinate
creditors are gonna see a dime. The UCC Article 9 sale
process is a mechanism That accepts that reality, That acknowledges that reality situation, Where they’re not gonna collect anything And it gives first position creditors A mechanism to sell assets to buyers Who know that they are buying assets Free and clear of debts and encumbrances. If you’re in the business
of asset acquisition, Stop the approach of a global resolution And start using the Article 9 Transaction. It eliminates the risk. It eliminates the uncertainty. It creates a mechanism
for you to accomplish
The very same goal in a
quicker, more-efficient, And more cost-effective way.
