Chapter 11 Reorganization Essay Example | Topics and Well Written Essays - 1000 words

Chapter 11 Reorganization - Essay Example 2. Background Rural/Metro Corporation is considered to be one of the largest private organizations and is engaged with providing emergency ambulance and fire safety services in the US. It operates in more than 21 states in the country and is estimated to provide services to more than 1.5 million emergency calls. Established in the year 1948, the prime motive of Rural/Metro Corporation has been to provide fire protection services in return of a small subscription fee, in those areas where no emergency facilities existed. Gradually, it became one of the largest medical emergency and fire protection providers. Consequentially, it was made public in the year 1993. Currently, it is owned by Warburg Pincus, LLC, a private equity management firm. The prime economic factor that resulted in filing for Chapter 11 by the organization, owed from inappropriate capital structure, which was formed under different economic conditions resulting in huge interest payment to the creditors (Rural/Metro C orporation, 2013; Indystar.com, 2013). 3. Financial Forecast of Rural/Metro Corporation for Five (5) Years Rural/Metro Corporation is considered to be one of the largest and the most consistent performer in the stock market. The organization has been found to implement new strategies every year that helped in making the financial conditions of the organization stronger. But, it was observed that after the acquisition of the organization by Warburg Pincus, LLC, the organization faced financial problems resulting from inappropriate capital structure that further was connoted as the consequence of rapid fluctuation in the economic condition of the country. According to the annual report of Rural/Metro 2010, it was viewed that the total revenue earned by the company amounted to US$ 133,513,000, which was much more in comparison to 2011-2012 (Rural/Metro Corporation, 2013). With reference to the above mentioned data gathered from the annual report of Rural/Metro for three consecutive yea rs i.e. 2010, 2011 and 2012, it can be viewed that lack of proper financial planning and the increasing rate of interest that was to be paid to the creditors, made the organization file for Chapter 11. However, if proper guidelines and planning were made after the reorganization, it can be stated that Rural/Metro would have been in a better financial position for the coming five years (Rural/Metro Corporation, 2013). 4. Evaluation of the Key Debt Reorganization The key type of debt reorganization that the company had selected to pay of the debts was by making agreements with lenders and bondholders. This technique is considered to be one of the best and simplest methods of collecting funds usually by borrowing or through an agreement. It is also worth mentioning that the agreement is done on a mutual understanding between both the parties, which does not make the borrower liable to pay the borrowed money before the time mentioned in the agreement (Indystar.com, 2013; Krueger, 2002). Theoretically, the three types of debt restructuring processes include general debt restricting, troubled debt restricting and corporate debt restricting. Comparatively, corporate debt restricting can be considered as one of the most beneficial methods for creditors. The main reason behind this is that in this method, the creditors either reduce the rate of interests or