Introduction

Welcome to Financial Restructuring and Bankruptcy: the framework that explains what happens when a borrower can no longer support its capital structure and either fixes the problem privately or files for court-supervised relief, plus the M&A registration overlay (Form S-4, the merger-vote-as-sale rule, the pre-filing communications safe harbor, the same-day filing requirement, Regulation M-A, the proxy solicitation rules) that governs how stock-for-stock deals are communicated, voted, and registered.

Exam Weight: Part of 24% / 18 items (Function 3). This unit pairs distress-mechanics scenario questions (priority waterfalls, debtor-in-possession (DIP) financing, plan confirmation) with M&A-registration recall (which form, which rule, what gets filed).

What You'll Learn

In this unit, you'll cover:

• Capital Structure Waterfall and Priority of Claims: How DIP super-priority, administrative expenses, secured creditors, unsecured creditors, mezzanine debt, and equity get paid in a distressed waterfall, and how the Absolute Priority Rule polices the order
• Credit Agreements vs Indentures: The two fundamental loan-document types, the contrast between an active administrative agent and a passive trustee, and the Trust Indenture Act of 1939 baseline for public debt
• Financial Covenants: Maintenance vs Incurrence: When each style is tested, the standard ratios (leverage, interest coverage, fixed-charge coverage), and the negative-covenant categories that police debt incurrence, liens, restricted payments, and asset sales
• Events of Default and Early Refinancing: Payment, covenant, representation, cross-default, bankruptcy, judgment, material adverse change (MAC), change-of-control, and ERISA triggers, plus the make-whole and call-protection economics of early repayment
• Chapter 11 Reorganization Process and Players: Voluntary versus involuntary petitions, the automatic stay, the debtor-in-possession default, the U.S. Trustee, the Official Committee of Unsecured Creditors (UCC), and when a Chapter 11 trustee actually gets appointed
• DIP Financing: The four post-petition credit tiers, super-priority administrative status, priming liens, adequate protection, roll-ups, and the milestone-driven loan covenants typical of distress financing
• Plan of Reorganization, Disclosure Statement, and Confirmation: The disclosure-statement "adequate information" standard, exclusivity periods, the consensual confirmation requirements, the cramdown standards, the class-voting math (two-thirds in amount and one-half in number), and impairment
• Prepackaged, Prearranged, and Traditional Chapter 11; Going-Concern Asset Sales; Chapter 7: The three flavors of Chapter 11, restructuring support agreements (RSAs), the free-and-clear going-concern asset sale and stalking-horse auction, and the differences between Chapter 11 reorganization and Chapter 7 liquidation
• Out-of-Court Restructuring and the Plan-Securities Exemption: Exchange offers, exit consents, the same-issuer exchange exemption, the bankruptcy-plan exemption for securities issued under a confirmed plan, and a side-by-side of the four registration paths
• M&A Registration Framework: Form S-4 and the Three Communications Rules: The registration statement that combines a prospectus and a proxy statement, the rule that treats a merger vote as a "sale" of acquirer securities, the safe harbor for pre-filing deal communications, and the same-day filing requirement that implements it
• Regulation M-A: The Items 1000-1016 disclosure overlay pulled into Schedule TO, Schedule 14D-9, Schedule 13E-3, Form S-4, and Schedule 14A, including the plain-English summary term sheet requirement
• Proxy Solicitation, Schedule 14A, and the Item 14 M&A Carve-Out: The proxy-solicitation rules, the 22 numbered items in the proxy statement schedule, the M&A-specific disclosure item, and how a stock-for-stock merger gets one combined joint proxy / prospectus

Why This Matters

Function 3 is the M&A, tender offers, and financial restructuring function (24% of the scored exam). Within Function 3, this unit serves two distinct exam-question genres:

• Distress mechanics: scenario questions that ask where a DIP loan sits in the waterfall, whether a class voted to accept, what relief from the automatic stay requires, or whether a particular sale qualifies for the free-and-clear bankruptcy provision
• M&A registration: recall questions that pair a deal-marketing fact (a press release, an investor presentation, a one-page summary) with the rule, form, or filing duty it triggers

There is one organizing question that unlocks both genres: who is being protected, and from what?

• The Bankruptcy Code protects creditors (and a residual equity interest) by enforcing absolute priority, requiring disclosure of "adequate information" before a vote, and policing classes by impairment
• The M&A registration regime protects target stockholders by requiring same-day filing of all written deal communications, a Form S-4 registration statement when stock is the consideration, and a joint proxy statement / prospectus when a stockholder vote is needed

Once you can place a fact pattern into one of the two protective regimes, you can derive the answer.

Let's start with the priority waterfall. Distress is fundamentally about who gets paid in what order, and every Chapter 11 mechanic in the rest of the unit either preserves or carefully bends that order.