Cram-Down Deal Definition

What Is a Cram-Down Deal?

A cram-down deal refers to a situation where an investor or creditor is burdened into accepting undesirable words in a transaction or bankruptcy courtroom instances. It can be used as an alternative choice to the period of time “cram down.” It has come into use as a casual catch-all for any transaction that involves investors being burdened into accepting damaging words, an identical to a sale at a low value, financing that dilutes their ownership share or which is especially pricey, or a debt restructuring that places them in a subordinate position.

It’s used a lot much less eternally as a way of describing when a bankruptcy court initiates a reorganization plan that for an individual or company irrespective of objections from creditors, that order or plan has been “stuffed down,” as in “down the throats of the creditors.”

Figuring out Cram-Down Provides

The period of time “cram-down deal” can be used in numerous situations in finance, on the other hand repeatedly represents an instance where an individual or a party is burdened to easily settle for hostile words given that alternatives are even worse. In a merger or buyout, a cram-down deal would in all probability come as the result of an offer or a transaction wherein the target company is in a financial state. 

An example of a cram-down deal may well be where a stockholder is burdened to easily settle for below-investment-grade debt in a transaction involving the reorganization of a company on account of cash or equity is not an selection. While junk debt is far much less attention-grabbing than cash or equity, it is upper than now not anything else. 

Cram-Down Deal Reasons

Cram-down gives tend to occur when a industry or entity that is in charge of managing an investment has made a mistake that has resulted in necessary enough losses that it does not have the ability to pay once more all of its creditors or differently cannot meet its tasks. Cram-down gives are also common in individual and corporate bankruptcy courtroom instances. 

Cram-Down Deal and Pensions

While the concept that of cram-down gives and the theory of having no variety on the other hand to accept damaging words in a transaction is not new, the prevalence of cram-down gives has upper in recent years.

One context where cram-down gives could also be noticed is in bankruptcies involving companies that offer defined-benefit pensions. companies in older industries, an identical to airlines or steel, could have ignored to totally fund their pensions. Upon bringing up bankruptcy, such companies will generally select to turn their pension plan control over to the Pension Get advantages Guaranty Corp. (PBGC), which might in all probability duvet only a portion of their pension tasks. That leaves workforce who are entitled to finish pensions with the selection of having to easily settle for only a portion of what they are rightfully owed—a cram-down deal.