Cram-Down Deal

What Is a Cram-Down Deal?

A cram-down deal alludes to a situation where an investor or creditor is forced into accepting unfortunate terms in a transaction or bankruptcy procedures. It very well may be utilized as an alternative to the term "cram down." It has come into utilization as a casual catch-for any transaction that includes investors being forced into accepting unfavorable terms, for example, a sale at a low price, financing that weakens their ownership share or which is particularly costly, or a debt restructuring that places them in a subordinate position.

It's utilized less regularly as an approach to portraying when a bankruptcy court starts a reorganization plan that for an individual or company in spite of complaints from creditors, that order or plan has been "crammed down," as in "down the throats of the creditors."

Understanding Cram-Down Deals

The term "cram-down deal" can be utilized in several situations in finance, however reliably addresses an occurrence where an individual or a party is forced to acknowledge adverse terms in light of the fact that the alternatives are even more regrettable. In a consolidation or buyout, a cram-down deal might come as the consequence of an offer or a transaction in which the target company is in a troubled financial state.

An illustration of a cram-down deal would be where a stockholder is forced to acknowledge below-investment-grade debt in a transaction including the reorganization of a company since cash or equity isn't an option. While junk debt is less alluring than cash or equity, it is better than nothing.

Cram-Down Deal Reasons

Cram-down deals will generally happen when a business or entity that is in charge of dealing with an investment has committed an error that has brought about huge enough losses that it doesn't can pay back its creditors or in any case can't meet its all obligations. Cram-down deals are likewise common in individual and corporate bankruptcy procedures.

Cram-Down Deal and Pensions

While the concept of cram-down deals and having no real option except to acknowledge unfavorable terms in a transaction isn't new, the predominance of cram-down deals has increased in recent years.

One setting where cram-down deals might be seen is in liquidations including corporations that offer defined-benefit pensions. Troubled companies in more established industries, like aircrafts or steel, may have neglected to fund their pensions fully. After defaulting on some loans, such companies will as a rule opt to give their pension plan organization to the Pension Benefit Guaranty Corp. (PBGC), which might cover just a portion of their pension obligations. That leaves workers who are qualified for full pensions with the decision of tolerating just a portion of what they are rightfully owed — a cram-down deal.

Features

• The term "cram-down deal" can be utilized in several situations in finance, yet reliably addresses an occasion where an individual or a party is forced to acknowledge adverse terms on the grounds that the alternatives are even more regrettable.
• An illustration of a cram-down deal would be where a stockholder is forced to acknowledge below-investment-grade debt in a transaction including the reorganization of a company since cash or equity isn't an option.
• A cram-down deal alludes to a situation where an investor or creditor is forced into accepting unwanted terms in a transaction or bankruptcy procedures.