Risks and Restructuring

Built by Stambaugh/2009

Jeff Stambaughjeff.stambaugh@mwsu.edu

http://faculty.mwsu.edu/business/jeff.stambaugh

Risk Management

Built by Stambaugh/2009

■ Traditional view: insure for risks■ 1970s and onward: risks can be calculated and

options sold (Black-Scholes option pricing model)■ Note: “Risk management” played role in current mess

■ Buehler et al (HBR Sept 2008)■ ID major risks (4-6)■ Own risks where you have advantage■ Determine capacity/appetite for risk■ Embed risk in all decisions■ Govern / organize for risk

Pratfalls!

Built by Stambaugh/2009

■ The Black Swan (Taleb)■ Do people understand these things?■ Quick Case Study

Restructuring

Built by Stambaugh/2009

■ Asset■ Capital■ Management (strategy)■ James (HBR, 2002)

■ Audit by outside accounting firm■ Grab the checkbooks (panic spending)■ Find the hidden heroes■ If necessary, clean house■ Act!■ Develop options■ Get more money than you think you need

Chapter 11 Bankruptcy

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■ Reorganization vs liquidation (Chapter 7)■ Court-supervised process

■ Generally shareholders are wiped out■ Creditors are in drivers seat■ Contracts can be breached (vendors, employees, leases,

customers)■ Debts may be cancelled (often swapped for equity)■ DIP lending goes first in line■ 18 months to have approved plan

■ Why is this unfair?■ GM as a case study

Hot Topics: Summary

Built by Stambaugh/2009

■ Risk management and restructuring no panacea