Case 058Restructuring and recoveriesHard

A company has filed. Given the enterprise value and a list of claims, including a bank loan only partly covered by its collateral, what is the recovery on each claim?

Houlihan LokeyNew York · 2026

The situation

Ambrosh Engineering has filed for insolvency. Advisers value the business as a going concern at Rs 1,100 crore. The claims are: a debtor-in-possession (DIP) loan of Rs 100 crore made after filing, with super-priority; administrative claims of Rs 50 crore for professional fees and post-filing costs; secured bank debt of Rs 700 crore, secured on plant and receivables worth Rs 500 crore; unsecured bonds of Rs 600 crore; and trade creditors of Rs 200 crore, also unsecured.

Assume the DIP and administrative claims are paid from value outside the bank's collateral, that all unsecured claims rank equally, and that value is paid strictly in order of rank.

Your task

What does each class recover, in rupees and as a percentage of its claim, and what single input moves the answer most?

Quick check

How much of the bank's Rs 700 crore is a secured claim?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

DIP and administrative claims recover 100%, the bank about 84.3%, and the bonds and trade creditors 45% each. After Rs 150 crore of priority claims, Rs 950 crore remains. The bank takes Rs 500 crore, its collateral's value, and its Rs 200 crore shortfall joins the unsecured pool. Rs 450 crore then meets Rs 1,000 crore of unsecured claims: 45 paise per rupee. Equity gets nothing.

Step 1In what order does the value flow?

Picture a household selling everything to settle its debts. The lawyer's fees and the emergency loan that kept the lights on during the sale come first. The lender with a charge on the car gets the car's price, not its original loan. Everyone else shares what is left in proportion to what they are owed. A recovery waterfall is that household at scale: priority claims, then each secured claim up to its collateral, then the unsecured pool pro rata, then equity. The DIP loanDebtor-in-possession financing: new money lent to a company after it files, repaid ahead of existing claims so the business can keep operating. and administrative claims take Rs 150 crore, leaving Rs 950 crore.

Of Ambrosh's Rs 1,100 crore, Rs 150 crore pays the DIP loan and administrative claims and Rs 500 crore pays the bank's secured claim, leaving Rs 450 crore for Rs 1,000 crore of unsecured claims, so the bank's shortfall, the bonds and the trade creditors each recover 45%.

Step 2Why does the bank's claim split in two?

The bank lent Rs 700 crore against assets now worth Rs 500 crore. Collateral value, not the size of the loan, decides how much of a secured claim is really secured. The bank is paid Rs 500 crore from its collateral, and its unpaid Rs 200 crore becomes a deficiency claimThe part of a secured creditor’s claim not covered by its collateral, which ranks alongside the other unsecured claims. that ranks with the bonds and trade. So the unsecured pool faces not Rs 800 crore of claims but Rs 1,000 crore.

Claim	Amount, Rs crore	Recovered, Rs crore	Recovery
DIP loan	100	100	100.0%
Administrative claims	50	50	100.0%
Bank: secured part	500	500
Bank: deficiency, unsecured	200	90
Bank in total	700	590	84.3%
Unsecured bonds	600	270	45.0%
Trade creditors	200	90	45.0%
Equity		0	0.0%
Total	1,650	1,100

Rs 1,100 crore is fully distributed: 150 to priority claims, 590 to the bank (84.3% of Rs 700 crore), 270 to the bonds and 90 to trade, each at 45%, and nothing to equity.

Step 3What does the wrong reading cost, and what moves the answer most?

Treat the whole Rs 700 crore as secured and the bank is paid in full, leaving Rs 250 crore for Rs 800 crore of bonds and trade: 31.25%. That single mistake moves Rs 110 crore from the bondholders and suppliers to the bank. The input that moves the answer most is therefore the collateral valuation, and it is exactly what the parties fight over. If the plant and receivables were worth Rs 700 crore, the bank would be fully secured and the unsecured recovery would fall to 31.25%. If they were worth Rs 300 crore, the bank's deficiency would grow to Rs 400 crore and the pool would share Rs 650 crore across Rs 1,200 crore of claims, about 54%.

Reading the bank as secured only up to its Rs 500 crore of collateral gives the bank 84.3% and the bonds and trade 45.0% each; wrongly treating all Rs 700 crore as secured gives the bank 100% and cuts the bonds and trade to 31.2%.

Close with the caveats a restructuring banker would add. Suppliers the business cannot operate without are often paid in full to keep supplies flowing, which reduces what the bonds get. Plans are frequently negotiated, so junior creditors or even equity may receive a small tip despite the strict order. And the valuation itself is a range, so recoveries are quoted as ranges too.

Where candidates lose it

The most common error is treating the bank's Rs 700 crore as fully secured because the loan is labelled secured. That hands the bank Rs 110 crore that belongs to the unsecured pool and gives the bonds 31% instead of 45%.

The second is forgetting that the deficiency claim joins the pool, so candidates divide Rs 450 crore by Rs 800 crore and give the bonds 56%. The pool's claims are Rs 1,000 crore.

What the interviewer asks next

The trade creditors are suppliers Ambrosh cannot replace, and they are paid in full. What do the bonds recover now?
If the DIP lender took a priming lien over the bank's collateral, how would the bank's recovery change?
The bonds are guaranteed by an operating subsidiary that holds Rs 200 crore of unencumbered assets. Walk through the effect.
How would you turn these recoveries into a bid price for the bonds today?

Asked at Houlihan Lokey, Restructuring, New York, 2026 (Wall Street Oasis): What is the recovery on each claim?

Company names and figures are illustrative.