After entering Chapter 11 bankruptcy, a large automobile service chain hired SP&H to value shares held by the company's Employee Stock Ownership Plan (ESOP).

SP&H's experience in valuing businesses in a wide range of circumstances allowed us to objectively analyze the value of equity for a company in bankruptcy.

After several years of aggressive expansion, the company received an unfavorable court ruling. With an already high level of debt from the expansion, the business was forced to file for bankruptcy. The company was allowed to reorganize in bankruptcy and was on track to meet required debt payments.

Although equity-holders in the company were unlikely to receive any benefit from ownership in the company for several years, the business would eventually emerge from bankruptcy, possibly in an even better financial position than before bankruptcy.

There was, however, substantial added risk to an investment in the company. If the company did not meet obligations under the reorganization, it would be forced into liquidation bankruptcy, in which case equity-holders would receive little or no return of their investment. As the company meets projections and approaches emergence from bankruptcy, this risk decreases, increasing the value of the shares.

The following graph illustrates this scenario for the company:

SP&H has been performing ESOP valuations for this company for several years. The company appears to be on track in achieving the above results.