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A small start-up company must make additional investments to maximize its firm value. But the company owner will not make this investment unless she can renegotiate outstanding debt claims. Solving this “debt overhang” problem through negotiation is the focus of the case. In this context, students are exposed to a variety of issues: the nature of financial claims, bargaining and negotiation fundamentals, and agency costs of debt.

The case provides an introduction to how currency mismatches create exposures, why and how companies hedge (or do not hedge) those exposures, alternate valuation models and the use of foreign currency convertibles in funding a global expansion program. The case highlights the ambitious growth strategy of Wockhardt, a global biopharmaceutical company. In a bid to dominate the biopharmaceutical market, Wockhardt grew aggressively by acquiring companies all over the world. This expansion was funded by a mix of secured loans (bank borrowings) and unsecured loans including foreign currency (US dollar denominated) convertible bonds (FCCBs). Due to deteriorating business and economic conditions, the company experienced a sharp decline in profitability and stock price resulting in a debt overhang. The company had to restructure its capital structure in March 2009 to escape bankruptcy. Since FCCB holders did not agree to restructure the terms of the instrument, the company had to turn to senior lenders to restructure debt. The company’s management is faced with several options to deal with financial distress. The case asks students to evaluate those options. The case can be used to teach hedging foreign currency exposures, design of capital structure in rapidly evolving industries and dangers of financing R&D intensive ventures with convertible debt denominated in foreign currencies.

The case is based on secondary data sources. Information statements filed with the Securities Exchange Board of India, the company’s website, press releases and security analyst reports formed the basis for this case. Supplementary information was gathered from the CAPITALINE database, and websites of the Bombay Stock Exchange and the National Stock Exchange of India. Sources of information are documented appropriately in the case and teaching note. No names in the case have been disguised. The authors have no personal relationship with the company.

The case is suitable for courses in corporate finance, mergers and acquisitions, international financial management, corporate restructuring and valuation at the graduate level. It can also be used in executive education programs.

The case provides an introduction to how currency mismatches create exposures, why and how companies hedge (or do not hedge) those exposures, alternate valuation models, the use of foreign currency convertibles in funding a global expansion program and the alternatives in corporate restructuring. Suitable references are provided in the teaching note.

The case highlights the ambitious growth strategy of Suzlon, an Indian company specializing in non-conventional (wind) energy. In 2007, Suzlon announced the acquisition of REpower of Germany, one of the top wind power companies in the world. It issued zero coupon and coupon bearing foreign currency (US dollar) convertible bonds (FCCB) amounting to $760 million to finance the acquisition. These bonds were listed in Singapore. Due to deteriorating business conditions the company experienced a sharp decline in profitability and stock price resulting in a debt overhang. At the same time, the Indian rupee depreciated from INR44 to INR55 leading to losses on largely unhedged, foreign currency coupon payments. The company had to restructure its capital structure to escape bankruptcy. Since FCCB holders did not agree to restructure the terms of the instrument, the company had to turn to senior lenders to restructure debt. Eventually Suzlon had to sell-off REpower to reduce leverage.

The case is based on interviews of market intermediaries and published information. The information relating to the restructuring has been taken from the information statement filed with the Securities Exchange Board of India and the Stock Exchanges. The timeline of events were constructed from the information available in company press releases. Financial statements and other details are from the documents filed with the regulators and supplemented with the information available in Prowess database. The stock price and stock market index data are from the websites of Bombay Stock Exchange and the National Stock Exchange of India. Exchange rates, inflation and interest rates have been taken from Bloomberg and the Reserve Bank of India website. Valuation inputs like multiples are from Prowess database and security analyst reports. Sources of information are documented appropriately in the case and instructor’s manual. Although we interviewed the investment bankers involved in the restructuring we have not included any private information in the case to preserve confidentiality.

This case can be used in a corporate finance course or in a module on debt restructuring in a corporate restructuring course or in the financing module in an advanced corporate finance course or in an International Finance course. It can also be used to teach an integrated approach to valuation and financing in a valuation course.

The case highlights the rationale for issuing FX convertible debt, parity conditions in international finance and the use of alternate valuation models.

Controladora Comercial Mexicana, a Mexican retailer, had successfully managed the bankruptcy process and was ready to emerge from its problems, primarily caused by speculation and excessive debt, and begin operations anew. Was the restructured Comerci capable of regaining its position as a premier retailer, and more importantly, was the firm capable of repaying the high level of debt that it carried following bankruptcy reorganization? How strong was the reorganized firm? Had Comerci truly left its problems behind in bankruptcy court, or would history repeat itself? How could Comerci raise funds needed for growth – through additional debt? Though asset sales?

This case was researched using publicly available information, including the company's financial statements, bankruptcy filings, news stories about the bankruptcy and financial data bases (e.g. ISI Emerging Markets, Economática, Capital IQ, etc.) to obtain information about the competitors and from financial analysts.

This case is intended for advanced undergraduate or MBA electives in finance. Students should have a basic understanding of valuation and financing before attempting this case. The case could also be used in a corporate finance or banking class to illustrate bankruptcy and credit risk, or could be used in an international business class to illustrate the differences between USA and international bankruptcies.

This public-sourced case was named the best finance case of 2013 in the 24th annual awards and competition sponsored by The Case Centre. It was designed for and works well in the latter portion of a GEMBA Financial Management and Policies course and in the early stage of a second-year MBA elective Financial Institutions and Markets course. The case is set in mid-2012 as the new co-CEOs of Deutsche Bank are about to speak in an analyst call. Students are the decision makers and have the opportunity to evaluate the various factors affecting a bank's situation in a changing global industry, such as leverage and credit quality, as well as to discuss the implications on Deutsche Bank and the banking sector more broadly of Basel III, the global regulatory reform. The students also have the opportunity to conduct a valuation of the bank. Investors were anxious to know whether the new co-CEOs would discuss the strategy of how Deutsche Bank planned to meet the new regulatory requirements, what effect Basel III would have on the company's profitability, and what lines of business it would focus on going forward in a new banking environment. They also wanted to know more about the benefits of the 2010 majority stake investment in Postbank, a German commercial bank. In class, this discussion also allows for a broader examination of the universal bank model and the role of banks within society.

Through this case, the students will be able: to study how developments in the external environment impact businesses, in general, and banking sector, in particular, banks/banking, environmental management, financing/borrowing, government, political business risk and politics; to identify the politico-legal constituents of the external environment which significantly influence businesses; and to analyse the pros and cons of loan-waivers as a policy decision on various stakeholders including banks, borrowers, governments as well as the larger society.

The case is symptomatic of the dilemmas faced by the Indian bank employees, in charge of loan-disbursals, torn between seemingly contradictory demands from their top management and the governments.

The case is meant to be used in the course on “Business Environment” both at the UG and PG levels. It can be used along with the module on “External Environment and its Constituents” to augment students’ understanding of the “Impact of Political Environment on Business.” The case can also enrich the class discussion on the PEST (politico-legal/economic/socio-cultural/technological) framework for analysing the forces in the external environment acting upon a business.

Teaching notes are available for educators only.

CSS 4: Environmental Management.

In July 2004, J.P. Morgan Partners (JPMP), the private equity arm of JPMorgan Chase & Co., was in the midst of formulating the final terms of a public-to-private buyout proposal for AMC Entertainment Inc. (AMCE), a publicly traded movie theater company.

Accounting, corporate governance, business ethics.

MBA and EMBA.

China has largely changed its accounting practice in line with international norms. But its corporate governance structure continued to be administratively driven. Many Chinese-listed companies, especially big ones, are transformed from state-owned enterprises, with the government as their largest shareholder. It is no exception to Company C. Then what is the common pattern of accounting behaviour in China? An insight could be drawn by analysing this case.

Highlight two issues in point, namely accounting issue and governance issue. Chinese companies are now allowed to choose their accounting policies, while their top decisions are subject to government policies. Identify Company C's creative accounting by discussing China's accounting reform. In this regard, China has been relatively robust in terms of dropping its own practice and adopting western one. Discuss the corporate governance issues unveiled. What are company's performance criteria? Are they clearly established and enforced? And what about government's decision to change CEO twice in less than one year? What are the impacts on CEO's behaviour?

Teaching note.