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Creditor Committees in 'Meltdown' Chapter 11 Cases

By Joshua Klein

Due to a number of forces, most importantly the global recession and the resulting global macroeconomic conditions, creditor committees are now having difficulty in finding their role in many Chapter 11 cases.

Many factors, including rapid declines in asset values, means that many secured lenders find themselves holding loans that are vastly under-collateralized. At the same time, the credit markets have all but dried up and companies in distress are being left with virtually no opportunities to refinance their debt, even if they haven't experienced a significant decline in the value of their assets. When this is coupled with the loss of cash flows that many businesses are experiencing as a result of the global recession, a great number of companies that would have previously survived difficult times are left with little choice other than to seek protection under Chapter 11. Exacerbating these circumstances is that many banks and other lenders have found that now is the most opportune time to shed underperforming loans regardless of the loss they incur in order to clean up their balance sheets. This means that certain lenders are more inclined to want to just get out, regardless of the losses realized.

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