Prearranged Bankruptcy
A San Jose bankruptcy lawyer speaks on prearranged bankruptcies...
When Citadel Broadcasting announced that it planned to file a “prearranged” Chapter 11 bankruptcy, some Bay Area consumers went "huh?" A “prearranged” bankruptcy is generally defined as a filing where the debtor has already worked out an arrangement with its major creditors. The idea behind working with creditors prior to filing is to help ensure the process runs relatively smoothly and keep the company’s time in bankruptcy as short as possible.
In Citadel’s case, it negotiated with its major creditors to reduce its current debt balance from approximately $2 billion, to $760 million. By decreasing its debt by more than half, Citadel planned to be able to emerge from bankruptcy quickly and be more profitable going forward. In return for the reduction in debt, Citadel relinquished virtually all of its equity to creditors. Citadel was forced into bankruptcy as a result of its crushing debt, given the depressed advertising market and increased competition.
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