Worked case — MidCap Specialty Chemicals is in financial distress. EBITDA −$15m (a loss), net debt $280m, pension DBO $90m, large litigation exposure $150m. How do you value it?

Distressed valuation toolkit:

• Going-concern stressed DCF: assume a restructuring plan — EBITDA recovering to $30m in 3 years, then $10m of growth. WACC = 14% (standard 9% + a 500 bps distress premium). PV of the forecast roughly −$20m + a recovery EV of ~$280m.
• Liquidation floor: asset liquidation value, estimated at $180m (inventory + PP&E + real estate, at a 40% discount).
• Total liabilities side: net debt 280 + pension 90 + probable litigation 75 (50% probability × 150) = $445m.
• Equity value, going concern: 280 − 445 = −$165m (equity underwater).
• Equity value, liquidation: 180 − 445 = −$265m. Conclusion: equity is worthless in both scenarios. Capital structure consistent with net debt of $280m: 1L $100m + senior unsecured $180m. Recovery waterfall (liquidation assets $180m): 1L recovery 100% ($100m fully covered) → residual $80m distributed across the competing unsecured claims (senior unsecured $180m + pension $90m + litigation $75m = $345m) → senior-unsecured recovery ~23% ($80m / $345m), not 40%.