Distressd Debt Lesson: The Auction

Many times, the penultimate act in a bankruptcy is the auction of the debtors assets. After the auction is settled, the only thing remaining is papering the disclosure statement and plan of reorg and confirmation. With that said, oftentimes when the market learns the results of an auction, it becomes much clearer as to the recovery of securities in the debtor's capital structure.

As reported earlier in the week, A123 (AONEQ) held its bankruptcy auction with Wanxiang emerging as the winner with a bid of $256.6M - a number that was not countered by JCI and NEC, who joint bid during the auction. The implications for the recovery on the converts of A123 will be for another post.

Surprisingly (I've only seen it in a few occasions), the transcript of the auction was filed with the bankruptcy court. I have embedded the document below:

AOne Bankruptcy Auction

I would encourage all readers that want to get a better handle on these auctions read the transcript. It's actually a fantastic read especially when Wanxiang just "goes over the top" with a huge bid increase that can't be matched by JCI/NEC. One thing I'd like readers to take away from the transcript is the way in which the parties at the auction value certain gives and takes.

More specifically, there are many things that a buyer can bid other than cash. Cash of course is the easiest to value but its NOT the only thing of value. Throughout the auction, Wanxiang and JCI/NEC offer different sources of value that benefit the debtors estate. The dollar values of these benefits, seemingly, were agreed to by all parties prior to the auction (probably in tandem with work done by AONE's investment bankers).

Enjoy the read. It's a fantastic learning lesson.


JJP,  12/13/2012  

Thanks for the post. This is fascinating.

Calibrated Confidence 12/13/2012  

You have a fantastic blog. Very much a fan of your ability to choose and present material.

Anonymous,  12/16/2012  

Great to read this!


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.