§ 01
| Creditor Class | Treatment | Recovery |
|---|---|---|
| Senior Secured (above fulcrum) | Paid in full (par + accrued) | 100% |
| Fulcrum Security | Partially impaired — receives mix of new debt, equity, cash | 20–80% (the variable) |
| Junior/Unsecured (below fulcrum) | Receives little or nothing | 0–20% typically |
| Equity | Cancelled in most cases | 0% |
§ 02
The fulcrum security is the investment opportunity. It’s the class that straddles the value break point — above it, creditors are made whole; below it, creditors get nothing. Identifying the fulcrum is the first step in distressed investing.
§ 03
In a bankruptcy case, estimate the company’s reorganized enterprise value and waterfall it through the capital structure. Where does the value run out? That layer is the fulcrum.
§ 04
A company has $500M senior secured debt, $300M unsecured notes, and $200M subordinated bonds. Reorganized value is estimated at $650M. What’s the fulcrum security?
§ 05
§ 06
In a Chapter 11 plan: senior secured gets 95% recovery, subordinated gets 30%, equity gets wiped. The 'fulcrum security' is:
Five questions · AI feedback
Sit with the ideas.
A company has $400M secured debt, $500M senior unsecured bonds, and $300M subordinated notes. The reorganization plan values the enterprise at $700M. The plan proposes: secured gets new par debt, senior unsecured gets 60% of new equity, subordinated gets nothing. Which class is the fulcrum security, and why might the subordinated noteholders object?
Why: