casemark/preparing-disclosure-statement-analysis

Preparing Disclosure Statement Analysis

When To Use

• Reviewing a debtor's disclosure statement before a §1125 adequacy hearing
• Preparing objections on behalf of creditors, equity holders, or committees
• Evaluating plan feasibility projections for an investor considering a claim purchase or plan sponsorship
• Comparing the proposed plan's recoveries against a hypothetical Chapter 7 liquidation
• Advising a client (lender, bondholder, trade creditor) on whether to vote for or against a plan

Inputs To Gather

• Disclosure statement and all exhibits (financial projections, liquidation analysis, valuation reports)
• Plan of reorganization (or summary of plan terms if full plan is not yet filed)
• Schedules and SOFA (Statements of Financial Affairs) from the bankruptcy filing
• Monthly operating reports (MORs) for trend analysis of debtor's post-petition performance
• Claims register or claims summary — secured, priority, administrative, general unsecured, equity
• Debtor's prepetition financials (audited or unaudited 2–3 years) for baseline comparison
• Independent valuation or appraisal reports, if filed separately from the disclosure statement
• Key case orders — DIP financing, cash collateral, critical vendor, 363 sales
• Stakeholder identity — which constituency the analysis serves (secured lender, unsecured creditor committee, equity, potential plan sponsor)

Workflow

1. Assess "adequate information" under §1125(a)

   • Confirm the disclosure statement describes the plan's classification structure, treatment of each class, and means for implementation
   • Check for description of the debtor's history, business operations, and reasons for filing
   • Verify disclosure of insider transactions, management compensation, and related-party dealings
   • Identify material omissions — missing risk factors, undisclosed litigation, or unexplained assumptions [VERIFY against local court's adequacy standards, which vary by jurisdiction]

2. Analyze financial projections

   • Compare revenue and EBITDA assumptions against historical performance in the MORs and prepetition financials
   • Stress-test key drivers: revenue growth rate, margin assumptions, capex requirements, working capital needs
   • Flag hockey-stick projections — where year-1 reorganized performance sharply diverges from recent actuals without clear operational justification
   • Evaluate the discount rate or multiple used for enterprise valuation; compare to comparable-company benchmarks
   • Assess the debtor's projected ability to service exit financing and plan consideration payments

3. Evaluate the liquidation analysis (§1129(a)(7) "best interests" test)

   • Confirm all material asset categories are included (real property, equipment, IP, avoidance actions, causes of action)
   • Check recovery assumptions for each asset class against orderly-liquidation and forced-sale benchmarks
   • Verify Chapter 7 administrative cost estimates (trustee fees at statutory rates, wind-down costs, professional fees) [VERIFY statutory trustee fee schedule under §326]
   • Compare per-class recoveries under the plan to per-class recoveries in liquidation
   • Identify classes where liquidation arguably yields equal or higher recovery — these are potential objection vectors

4. Review classification and treatment

   • Map each claim type to its plan class; flag any gerrymandering (splitting similar claims into separate classes to manufacture an accepting class)
   • Confirm priority claims (§507) receive required treatment under §1129(a)(9)
   • Check for unfair discrimination among classes of equal rank
   • Evaluate whether any impaired class is being asked to accept treatment below the liquidation floor

5. Assess feasibility (§1129(a)(11))

   • Determine whether the reorganized debtor can meet ongoing obligations without a likely need for subsequent liquidation or further reorganization
   • Review capital structure post-emergence: leverage ratios, debt service coverage, liquidity cushion
   • Evaluate management and governance changes — is the same team that drove distress running the reorganized entity?
   • Assess contingent liabilities (pending litigation, environmental, pension) that could undermine projected performance

6. Identify confirmation objection grounds

   • Summarize potential §1129(a) objection bases: inadequate information, best-interests failure, unfair discrimination, lack of feasibility, bad faith
   • For cram-down scenarios (§1129(b)), evaluate whether the plan satisfies "fair and equitable" and "does not discriminate unfairly" for each rejecting class
   • Note any unresolved claim disputes that could shift voting outcomes

Output

Structure the analysis as follows:

• Executive Summary — one-page overview of key findings, recommended position (support/object/negotiate), and critical risks
• Adequacy of Information — section-by-section assessment of disclosure completeness, with specific omissions flagged
• Projection Analysis — table comparing debtor projections to historical actuals and stress-case scenarios; highlight key sensitivities
• Liquidation Comparison — side-by-side recovery matrix (plan vs. Chapter 7) by class, with notes on disputed assumptions
• Classification & Treatment Review — class-by-class analysis with flags for gerrymandering, unfair discrimination, or priority violations
• Feasibility Assessment — qualitative and quantitative evaluation of post-emergence viability
• Objection Points — prioritized list of potential objection grounds with supporting analysis and case law references [VERIFY case law citations against current circuit authority]
• Recommendation — actionable next steps for the client, including negotiation leverage points

Quality Checks

• Every material projection assumption is compared to at least one objective benchmark (historical data, industry comp, or third-party report)
• Liquidation analysis covers all asset categories disclosed in the schedules; no unexplained exclusions
• Each plan class is evaluated for both the best-interests test and feasibility
• Stakeholder-specific bias is explicit — the analysis states whose perspective it adopts
• All jurisdiction-dependent standards are marked [VERIFY] (e.g., local adequacy rules, trustee fee calculations, circuit-specific cram-down precedent)
• No unsupported legal conclusions — factual findings are separated from legal arguments
• Financial figures cross-check between the disclosure statement, the plan, and the MORs for internal consistency