valueofassets,basedontheexperienceofotherdistressed
firms. Thus, the factthat other distressed companies were
abletoselltheirassetsfor 20 percentofbookvaluewould
indicatethatthedistresssaleproceedswouldbe 20 percentof
the book value of the assets of the firm.
Notethatmanyoftheissuesthatcomeupwhenestimating
distresssaleproceeds—theneedtosellatbelowfairvalue,
theurgencyoftheneedtosell—areissuesthatarerelevant
when estimating liquidation value.
ILLUSTRATION17.2:EstimatingDistressSaleProceedsin
January 2002: Global Crossing
Toestimatetheexpectedproceedsintheeventofadistress
sale,weconsideredseveralfactors.First,thesluggishgrowth
intheeconomyinJanuary 2002 clearlydidnotbodewellfor
anyfirmtryingtosellitsassetsinaliquidation.Second,the
factthatalargenumberoftelecomfirmswereindistressand
lookingforpotentialbuyers atthat timewasalso likelyto
weighdowntheproceedsin asale.Infact,PSInet,another
telecomfirmthathadrecentlybeenforcedintoadistresssale,
wasabletoreceivelessthan10%ofitsbookvalueinthesale.
For Global Crossing, we asssumed that the distress sale
proceedswould be15% ofthe bookvalue ofthenoncash
assets.
Book value of noncash assets$14,531
million
Distresssalevalue=15%ofbookvalue=.15×
14,531 =$2,180
million