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Underwriting Case Sharing

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Case 1

Background of the case

  • The buyer was established in 1994. It operates as a fashion retail chain focusing on lingerie and nightwear.
  • The buyer was bought by a private equity group in 2006.
  • Over 90% of its turnover was generated from the UK market.
  • The buyer went into administration because of tough trading conditions and hence poor sales.

Financial situation of the buyer before going to administration

  • The buyer recorded downward business trend before entering into administration.
  • As a result of declined sales, gross profit was insufficient to cover high administrative expenses which led to negative operating results.
  • The buyer had posted large net loss since being acquired by private equity group, due to the substantial interest bearing funds and large interest expenses. This adversely affected its bottom line and eroded its net worth base to deficit.
  • The buyer had large fixed operating costs mainly represented by operating lease charge, which accounted for over 75% of its administrative expenses.
  • Around 80% of buyer’s liabilities were due to the private equity group.


  • Exporters should be aware of buyer with high business concentration risk and with high fixed operating costs as these companies are usually more vulnerable to deterioration in market trend.
  • Exporters should also be aware of buyers which heavily relied on interest bearing funds even the funds are from private equity group.

Case 2

Background of the case

  • The buyer was a USA listed company with over a century of business history, operating as an imaging solutions and services provider with large operating scale.
  • The buyer business started to deteriorate as a result of keen competition from foreign competitors and erosion of traditional film business.
  • The buyer tried a number of turnaround strategies and cost-cutting efforts but it still struggled to adapt to an increasingly digital world.
  • The buyer finally run short of cash, and the buyer itself together with its US subsidiaries filed voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The foreign subsidiaries were not part of the Bankruptcy Filing. The buyer continued to operate their businesses as “debtors-in-possession”, while foreign subsidiaries continued to operate in the ordinary course of business.

Financial situation of the buyer before filing for bankrupcy

  • The buyer incurred consecutive years of operating losses and net losses.
  • The buyer posted deficit net worth base and negative cashflow from operating activities over years.
  • The buyer’s debt load was heavy.


  • Even a long established listed company with good reputation and well-known brands could face financial difficulties.
  • Exporters should always be alert to the business performance and development of their trading partners.
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