--- name: modeling-fresh-start-accounting-c7141da71b45 language: en description: Structures fresh-start accounting analysis with reorganization value allocation, new basis determination, and emergence balance sheet. Use when modeling fresh-start accounting, preparing emergence financials, or allocating reorganization value. tags: - modeling - distressed-and-restructuring - accounting metadata: author: casemark practice_areas: - Restructuring - Distressed Investing - Turnaround document_types: - Financial Model skill_modes: - Modeling - Forecasting --- # Modeling Fresh Start Accounting ## When To Use - Debtor has confirmed a Chapter 11 plan and meets both ASC 852 eligibility tests: (1) reorganization value of emerging entity's assets is less than total post-petition liabilities and allowed claims, and (2) pre-petition voting shares lost majority control - Preparing day-one emergence balance sheet for SEC filing, lender reporting, or investor due diligence - Allocating reorganization value across identifiable assets and goodwill for a post-emergence entity - Modeling the financial impact of plan-of-reorganization scenarios on emergence equity value - Advising distressed investors on expected book-value basis in post-emergence equity or debt ## Inputs To Gather - **Pre-emergence balance sheet** — last filed debtor balance sheet (10-Q/10-K or monthly operating report) - **Confirmed plan of reorganization** — treatment of each class, new equity allocation, reinstated/new debt terms - **Enterprise / reorganization value** — from disclosure statement valuation (DCF, comparable companies, precedent transactions) or negotiated plan value - **Fair value appraisals** — third-party or management estimates for PP&E, intangibles, real estate, inventory - **Debt schedules** — exit facility term sheets, reinstated debt terms, accrued interest through effective date - **Tax attributes** — NOL carryforward schedule, Section 382 limitation estimate, deferred tax asset/liability detail [VERIFY against debtor's tax advisors] - **Claim reconciliation** — allowed claims by class versus scheduled amounts, any disputed/contingent reserves ## Workflow 1. **Confirm fresh-start eligibility** - Test reorganization value < total post-petition liabilities + allowed claims - Test pre-petition shareholders received < 50% of new voting equity - Document both tests with specific figures and sources 2. **Establish reorganization value** - Use midpoint of disclosure-statement valuation range unless plan specifies a different basis - Reconcile enterprise value to equity value: EV − exit debt − other priority claims = equity reorganization value - Note any negotiated plan adjustments that override standard valuation 3. **Mark assets to fair value** - Revalue each asset class to fair value: cash (par), receivables (net realizable), inventory (NRV or replacement), PP&E (appraised), identified intangibles (relief-from-royalty, multi-period excess earnings, or cost approach as appropriate) - Eliminate historical goodwill entirely - Record deferred tax impact of fair-value step-ups/step-downs [VERIFY — jurisdiction-specific tax rates and Section 382 limitations apply] 4. **Mark liabilities to fair value** - Exit debt at par (new issuance) or fair value (reinstated obligations) - Record lease liabilities under ASC 842 at emergence terms - Adjust pension/OPEB to current actuarial value - Settle pre-petition claims per plan: convert to new equity, cash, or new notes 5. **Allocate reorganization value excess** - Compute excess: reorganization value of assets − sum of fair-valued identifiable net assets - Positive excess → new goodwill on emergence balance sheet - Negative excess → reduce long-lived asset values pro-rata (intangibles first, then PP&E) until eliminated; any remainder recognized as a bargain-purchase gain [VERIFY — rare but occurs in deeply distressed cases] 6. **Build emergence balance sheet** - Present a clean day-one balance sheet with all fresh-start adjustments in a bridge/waterfall format - Columns: pre-emergence book → plan adjustments (debt discharge, equity conversion) → fresh-start adjustments (fair value marks, goodwill) → post-emergence balance sheet - Equity section: new common equity at reorganization value, no retained earnings (reset to zero), no AOCI carryover 7. **Sensitivity and scenario analysis** - Flex reorganization value ±10–20% and show impact on goodwill and emergence equity - Scenario-test key valuation assumptions (discount rate, terminal growth, EBITDA margin) - Show impact of Section 382 limitation on usable NOLs and resulting DTA adjustment ## Output - **Fresh-start bridge table** — waterfall from pre-emergence to post-emergence balance sheet with plan-adjustment and fresh-start-adjustment columns - **Reorganization value allocation schedule** — line-by-line asset/liability fair values, identifiable intangible breakdown, and residual goodwill - **Emergence balance sheet** — day-one balance sheet formatted for 8-K or lender-presentation use - **Sensitivity matrix** — goodwill and equity sensitivity to reorganization value range - **Assumptions log** — numbered list of every material assumption with source reference and [VERIFY] flags ## Quality Checks - Emergence balance sheet balances (assets = liabilities + equity) — confirm to the dollar - Reorganization value of total assets ties back to enterprise value build-up - Goodwill is non-negative; if negative, confirm long-lived assets were reduced per ASC 852-10-45 - Eliminated items: historical goodwill is zero, retained earnings is zero, AOCI is zero - Exit debt face value matches confirmed plan term sheets - DTA/DTL reflects post-382 limitation on NOLs, not pre-petition full carryforward [VERIFY] - All fair-value marks have a cited source (appraisal, management estimate, or model output) - No stale pre-petition accrual balances carried through — each liability line reconciled to plan treatment --- Source attribution: CaseMark Original project: https://github.com/CaseMark/skills/blob/449269ec49b6a8f1b4614cea52aa44b2a76e4e94/skills/capital/modeling-fresh-start-accounting/SKILL.md License: Apache-2.0 License information: https://www.apache.org/licenses/LICENSE-2.0 Original upstream instructions; downloaded from Mega AI Hub. ## Upstream license notice Apache License Version 2.0, January 2004 http://www.apache.org/licenses/ TERMS AND CONDITIONS FOR USE, REPRODUCTION, AND DISTRIBUTION 1. Definitions. "License" shall mean the terms and conditions for use, reproduction, and distribution as defined by Sections 1 through 9 of this document. "Licensor" shall mean the copyright owner or entity authorized by the copyright owner that is granting the License. "Legal Entity" shall mean the union of the acting entity and all other entities that control, are controlled by, or are under common control with that entity. For the purposes of this definition, "control" means (i) the power, direct or indirect, to cause the direction or management of such entity, whether by contract or otherwise, or (ii) ownership of fifty percent (50%) or more of the outstanding shares, or (iii) beneficial ownership of such entity. "You" (or "Your") shall mean an individual or Legal Entity exercising permissions granted by this License. "Source" form shall mean the preferred form for making modifications, including but not limited to software source code, documentation source, and configuration files. "Object" form shall mean any form resulting from mechanical transformation or translation of a Source form, including but not limited to compiled object code, generated documentation, and conversions to other media types. "Work" shall mean the work of authorship, whether in Source or Object form, made available under the License, as indicated by a copyright notice that is included in or attached to the work (an example is provided in the Appendix below). "Derivative Works" shall mean any work, whether in Source or Object form, that is based on (or derived from) the Work and for which the editorial revisions, annotations, elaborations, or other modifications represent, as a whole, an original work of authorship. For the purposes of this License, Derivative Works shall not include works that remain separable from, or merely link (or bind by name) to the interfaces of, the Work and Derivative Works thereof. "Contribution" shall mean any work of authorship, including the original version of the Work and any modifications or additions to that Work or Derivative Works thereof, that is intentionally submitted to the Licensor for inclusion in the Work by the copyright owner or by an individual or Legal Entity authorized to submit on behalf of the copyright owner. For the purposes of this definition, "submitted" means any form of electronic, verbal, or written communication sent to the Licensor or its representatives, including but not limited to communication on electronic mailing lists, source code control systems, and issue tracking systems that are managed by, or on behalf of, the Licensor for the purpose of discussing and improving the Work, but excluding communication that is conspicuously marked or otherwise designated in writing by the copyright owner as "Not a Contribution." "Contributor" shall mean Licensor and any individual or Legal Entity on behalf of whom a Contribution has been received by the Licensor and subsequently incorporated within the Work. 2. Grant of Copyright License. Subject to the terms and conditions of this License, each Contributor hereby grants to You a perpetual, worldwide, non-exclusive, no-charge, royalty-free, irrevocable copyright license to reproduce, prepare Derivative Works of, publicly display, publicly perform, sublicense, and distribute the Work and such Derivative Works in Source or Object form. 3. Grant of Patent License. Subject to the terms and conditions of this License, each Contributor hereby grants to You a perpetual, worldwide, non-exclusive, no-charge, royalty-free, irrevocable (except as stated in this section) patent license to make, have made, use, offer to sell, sell, import, and otherwise transfer the Work, where such license applies only to those patent claims licensable by such Contributor that are necessarily infringed by their Contribution(s) alone or by combination of their Contribution(s) with the Work to which such Contribution(s) was submitted. If You institute patent litigation against any entity (including a cross-claim or counterclaim in a lawsuit) alleging that the Work or a Contribution incorporated within the Work constitutes direct or contributory patent infringement, then any patent licenses granted to You under this License for that Work shall terminate as of the date such litigation is filed. 4. Redistribution. You may reproduce and distribute copies of the Work or Derivative Works thereof in any medium, with or without modifications, and in Source or Object form, provided that You meet the following conditions: (a) You must give any other recipients of the Work or Derivative Works a copy of this License; and (b) You must cause any modified files to carry prominent notices stating that You changed the files; and (c) You must retain, in the Source form of any Derivative Works that You distribute, all copyright, patent, trademark, and attribution notices from the Source form of the Work, excluding those notices that do not pertain to any part of the Derivative Works; and (d) If the Work includes a "NOTICE" text file as part of its distribution, then any Derivative Works that You distribute must include a readable copy of the attribution notices contained within such NOTICE file, excluding any notices that do not pertain to any part of the Derivative Works, in at least one of the following places: within a NOTICE text file distributed as part of the Derivative Works; within the Source form or documentation, if provided along with the Derivative Works; or, within a display generated by the Derivative Works, if and wherever such third-party notices normally appear. The contents of the NOTICE file are for informational purposes only and do not modify the License. You may add Your own attribution notices within Derivative Works that You distribute, alongside or as an addendum to the NOTICE text from the Work, provided that such additional attribution notices cannot be construed as modifying the License. You may add Your own copyright statement to Your modifications and may provide additional or different license terms and conditions for use, reproduction, or distribution of Your modifications, or for any such Derivative Works as a whole, provided Your use, reproduction, and distribution of the Work otherwise complies with the conditions stated in this License. 5. Submission of Contributions. Unless You explicitly state otherwise, any Contribution intentionally submitted for inclusion in the Work by You to the Licensor shall be under the terms and conditions of this License, without any additional terms or conditions. Notwithstanding the above, nothing herein shall supersede or modify the terms of any separate license agreement you may have executed with Licensor regarding such Contributions. 6. Trademarks. This License does not grant permission to use the trade names, trademarks, service marks, or product names of the Licensor, except as required for reasonable and customary use in describing the origin of the Work and reproducing the content of the NOTICE file. 7. Disclaimer of Warranty. Unless required by applicable law or agreed to in writing, Licensor provides the Work (and each Contributor provides its Contributions) on an "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied, including, without limitation, any warranties or conditions of TITLE, NON-INFRINGEMENT, MERCHANTABILITY, or FITNESS FOR A PARTICULAR PURPOSE. You are solely responsible for determining the appropriateness of using or redistributing the Work and assume any risks associated with Your exercise of permissions under this License. 8. Limitation of Liability. In no event and under no legal theory, whether in tort (including negligence), contract, or otherwise, unless required by applicable law (such as deliberate and grossly negligent acts) or agreed to in writing, shall any Contributor be liable to You for damages, including any direct, indirect, special, incidental, or consequential damages of any character arising as a result of this License or out of the use or inability to use the Work (including but not limited to damages for loss of goodwill, work stoppage, computer failure or malfunction, or any and all other commercial damages or losses), even if such Contributor has been advised of the possibility of such damages. 9. Accepting Warranty or Additional Liability. While redistributing the Work or Derivative Works thereof, You may choose to offer, and charge a fee for, acceptance of support, warranty, indemnity, or other liability obligations and/or rights consistent with this License. However, in accepting such obligations, You may act only on Your own behalf and on Your sole responsibility, not on behalf of any other Contributor, and only if You agree to indemnify, defend, and hold each Contributor harmless for any liability incurred by, or claims asserted against, such Contributor by reason of your accepting any such warranty or additional liability. END OF TERMS AND CONDITIONS Copyright 2025 CaseMark, Inc. Licensed under the Apache License, Version 2.0 (the "License"); you may not use this file except in compliance with the License. You may obtain a copy of the License at http://www.apache.org/licenses/LICENSE-2.0 Unless required by applicable law or agreed to in writing, software distributed under the License is distributed on an "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied. See the License for the specific language governing permissions and limitations under the License. # Mega AI Hub resource metadata Creator / publisher: CaseMark Original project: https://github.com/CaseMark/skills/blob/449269ec49b6a8f1b4614cea52aa44b2a76e4e94/skills/capital/modeling-fresh-start-accounting/SKILL.md Attribution basis: Source repository record Fields of work: Finance & Accounting, Sales Roles: Accountant, Business Development, CFO / FP&A, Financial Analyst, Tax Specialist Specialties: Specialty not specified Tools: Financial Modeling Software Country applicability: Country not specified Classification basis: Source catalog labels Instruction SHA-256: 10d8b8cbaefedf67f0c884dbdfc74dced72bbd2b28e030d0a819c2e358f69ff4