Ohm, from a default perspective whether there is a
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Posted On: 11/15/2019 5:11:44 AM
Ohm, from a default perspective whether there is a collateral or not, still they would need to go to the court.
A few example to understand why, collateral in corps are protected.
Corp A gets money from owners and issues shares, for $200m. Corp A buys an asset of $150m.
Corp A signs a loan for $25m agreement with Corp Z (a spin off Corp that CEO of Corp A is a chairman and major shareholder) and puts the new $150m asset as collateral.
Corp A defaults. Corp Z (CEOs spin off) cannot not take $150m asset. It can only take somewhat more than $25m of asset.
A clear example of this that we have seen over and over in the past few years, is Eddie Lampert. He as the CEO of Sears Holding, keeps borrowing money from his own spin offs and defaults. Signed Sears contracts through his spin offs and broke contracts and paid termination fees. He only had Sears Holding share holders that he believes the he can revive Sears (in fact he fooled the judge in Feb 2019 to buy the remainder of in for $5.2B) and keep giving Sears loans.
The loans and contracts with his spin offs all had collateral tangible asset of real estate plus intangible lease holdings. His spin offs couldn't take all Sears holdings assets, in one shot. That's why he needed repeat the cycle, and every time generates some liability to his spin offs. After all these other Sears Holding owners are now sueing him for this scam to lending money as he knew as a CEO of Sears that is will fail, to make himself rich.
This is a general case, and so no collateral is taken a of a loan. It has to sell through a procedure and loan and costs paid. Extras goes back to other lenders and owners.
A few example to understand why, collateral in corps are protected.
Corp A gets money from owners and issues shares, for $200m. Corp A buys an asset of $150m.
Corp A signs a loan for $25m agreement with Corp Z (a spin off Corp that CEO of Corp A is a chairman and major shareholder) and puts the new $150m asset as collateral.
Corp A defaults. Corp Z (CEOs spin off) cannot not take $150m asset. It can only take somewhat more than $25m of asset.
A clear example of this that we have seen over and over in the past few years, is Eddie Lampert. He as the CEO of Sears Holding, keeps borrowing money from his own spin offs and defaults. Signed Sears contracts through his spin offs and broke contracts and paid termination fees. He only had Sears Holding share holders that he believes the he can revive Sears (in fact he fooled the judge in Feb 2019 to buy the remainder of in for $5.2B) and keep giving Sears loans.
The loans and contracts with his spin offs all had collateral tangible asset of real estate plus intangible lease holdings. His spin offs couldn't take all Sears holdings assets, in one shot. That's why he needed repeat the cycle, and every time generates some liability to his spin offs. After all these other Sears Holding owners are now sueing him for this scam to lending money as he knew as a CEO of Sears that is will fail, to make himself rich.
This is a general case, and so no collateral is taken a of a loan. It has to sell through a procedure and loan and costs paid. Extras goes back to other lenders and owners.
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