Litigation + Valuation Perspectives

Demystifying Valuation, Economic Damages + Forensic Accounting

Brexit and Bankruptcy

How can a macro-economic event, such as when the United Kingdom voted to exit the European Union, impact everyday people and corporations and help them emerge from bankruptcy protection in the United States? When the UK voted to exit the EU, this caused a significant panic in the investment community, particularly investments in foreign stocks. When there are such uncertain times, investors have a tendency to liquidate their equity holdings, including riskier foreign stocks, and invest their money in less risky investments, such as U.S. Treasuries. As these large numbers of investors buy U.S. Treasuries, the prices increase and the rates of return decline. As the yields on the U.S. Treasuries decline, so do other interest rates.

One of the key issues for debtors trying to emerge from bankruptcy protection is how to restructure their secured debt; and, a key component is what a reasonable rate of return should be for the secured lenders. As market interest rates decline due to the declining U.S. Treasury rates, this can significantly lower the required monthly payments on the restructured debt and make the Debtor’s Plan of Reorganization more feasible. Thus, they have a better chance to emerge from bankruptcy protection.

By Ted Burr, CTP, CIRA