Project Hollowbrook — Recovery Analysis & Liquidation Waterfall
A 2-hour Recovery Analysis / Chapter 7 Comparison case study with a complete model answer
Modeled After
Houlihan Lokey
A recovery analysis pairing a liquidation study — asset recovery rates at low and high, run through a claims waterfall by class — against a distressed going-concern alternative, with the liquidation work attributed to its third-party preparer in the exhibit title
Structure and exhibit set are modeled after Houlihan Lokey. The company, the financials and every figure in this case are entirely our own.
The Situation
Hollowbrook Media Corporation (OTC: HBMC) owns and operates 34 local television stations in 22 markets across the Midwest, the Southeast and the Mountain West, together with the digital properties attached to them.
Hollowbrook Media Corporation
- Sector
- Local television broadcasting — 34 stations in 22 markets, with core and political advertising, distribution and retransmission consent revenue, and an attached digital business
- Size
- Geography
- United States; headquartered in Belvoir, Illinois, with stations across the Midwest, the Southeast and the Mountain West and production facilities in Corbray, Georgia and Falkenridge, Colorado
- Ownership
- Situation
The Prompt
You are the financial advisor to the Official Committee of Unsecured Creditors of Hollowbrook Media Corporation. The company is in chapter 11, a plan sponsor has made a non-binding proposal at a stated enterprise value, and a third-party appraiser has delivered a hypothetical chapter 7 liquidation analysis.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
Extract from the Annual Report on Form 10-K
PDFUnlockSummary of the Credit Agreements, Indentures and Subordination Agreement
PDFUnlockFirst Day Declaration and the Plan-Sponsor Proposal
PDFUnlockIllustrative Liquidation Appraisal
PDFUnlockBlank modeling template
XLSXUnlockClaims register extract
XLSXUnlock
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 120 minutes.
PART 1
The earnings base and both leverage bases
PART 2
Capitalization and the collateral map
PART 3
Claim sizing
PART 4
Screen the claims register
PART 5
Value available for distribution
PART 6
Recoveries across the range
PART 7
The subordination agreement
PART 8
Where value breaks
PART 9
The chapter 7 liquidation and the best-interests test
PART 10
The presentation and the memorandum
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck, Excel model and memo are in the solution set below.
- 01
Read the structure before you read the numbers
- 02
Screen the claims register yourself
- 03
Size the claims, not the principal
- 04
Sensitize rather than conclude
- 05
Solve the breakpoints, do not read them
- 06
Build the floor last and compare it on the same basis
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
The fulcrum security
The most senior class not paid in full, and therefore the class whose claim converts into the equity of the reorganized company. It is where negotiating leverage actually sits, and it is the answer to who is really at the table. The common mistake is to treat it as a fixed property of a capital structure. It depends instead on how much value there is and on which alternative is being priced, which is why it is located across a range rather than fixed at a point.
Structural versus contractual subordination
Contractual subordination is an agreement: two classes at the same obligor with the same guarantees, one of which has agreed to stand behind the other, usually with a turnover provision that redirects its distribution until the senior class is paid. Structural subordination is not an agreement at all — it is the ordinary consequence of issuing paper at an entity whose only asset is the equity of the entity that owns the business. Conflating them inverts classes, and the market prices the difference: structurally subordinated paper can trade below paper that is nominally more junior by name.
Section 506(a) bifurcation and deficiency claims
A claim secured by property of the estate is allowed as secured only up to the value of the collateral, and the balance becomes an unsecured claim ranking pari passu with the trade and the notes. The practical effect is that a low enterprise value hurts the junior unsecured classes twice — less residual value to share, and more claims sharing it. A recovery analysis that omits the deficiency claims overstates every junior recovery in exactly the columns where the answer is in doubt.
Section 502(b)(6) and lease rejection damages
A landlord's claim for damages from the termination of a real property lease is capped at the rent reserved for the greater of one year and fifteen percent of the remaining term, not to exceed three years. The cap is on the claim, not on the landlord's damages, and it applies whether the lease is rejected or terminated. It is computed on undiscounted rent reserved, so the recorded ASC 842 lease liability — which is a present value — is not the input.
Section 506(b) postpetition interest and the equity cushion
An oversecured creditor is entitled to postpetition interest and reasonable fees, but only to the extent its collateral exceeds its claim. The limit binds in a bad liquidation case and not in a good one, and showing the allowed interest on its own line rather than folding it into a recovery keeps the percentage struck on the prepetition claim and stops a class reading above par.
Section 506(c) and the surcharge
The costs of preserving or disposing of collateral are chargeable against that collateral to the extent of the benefit to the secured party. In a liquidation analysis that means proceeds are allocated to each collateral pool before costs and each pool bears its own, rather than costs being netted at estate level. It is the difference between two secured recoveries a reader can check independently and two that have to be taken on trust.
The best-interests test
Under section 1129(a)(7), each holder of a claim in an impaired class must either accept the plan or receive at least what it would receive in a chapter 7 liquidation. It is applied holder by holder rather than class by class, and it is not a materiality test — a single dissenting holder in a class that falls short of the floor defeats confirmation. It is a separate test from the absolute priority rule of section 1129(b)(2)(B), and a plan must clear both.
Unrestricted subsidiary designations and section 548
Designating a subsidiary unrestricted and contributing assets to it moves value out of the collateral package without moving it out of the estate, which changes who reaches it and in what rank. It also exposes the transfer to constructive fraudulent transfer challenge — a two-year look-back under section 548 and typically four years under state Uniform Voidable Transactions Act analogues. The value of that claim is not constant: it is worth something only in the states of the world where the secured classes are not paid in full anyway.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: answer deck, Excel model and memo, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Chapter 7 liquidation analysis
- —Asset recovery rates low and high
- —Claims waterfall by priority class
- —Leverage through each tranche
- —Structural priority and collateral mapping
- —Best-interests test
Answer Deck
Full model answer, banker-formatted
Memo
The written recommendation and how it was reached
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model, the memo and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and PowerPoint Deck and Memo (PDF) and Answer Deck (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Hollowbrook — Recovery Analysis & Liquidation Waterfall
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
Why is there no valuation in a case that turns on enterprise value?
Because the recovery materials this case is modeled on do not contain one. Once a company is in chapter 11 the operative questions are what the collateral is, who has a lien on it, how the claims are sized and what each class is legally entitled to. Enterprise value still appears, but as a stated illustrative range across which recoveries are sensitized, with the advisor expressing no view on which point in the range is correct. That is what lets the reader see how much of a recovery depends on being right about value.
Should recoveries be struck on principal or on the allowed claim?
On the allowed claim, including accrued interest to the petition date, and the document should say so where a reader can see it. Striking on principal overstates every recovery percentage in the case by the accrual, and because the resulting number still looks plausible the error survives review. The one place postpetition interest enters is an oversecured class in a liquidation, and there it is capped by the equity cushion and shown on its own line.
How much of the 120 minutes should go on the workbook?
Most of it. The modeling is heavy — claim sizing, a going-concern waterfall across six enterprise values, a turnover block, five breakpoint solves, a counterfactual, a liquidation with per-pool costs and a best-interests comparison — and the template's own cover prints the measured scope and a suggested build order. The balance goes on reading the documents, screening the claims register and forming the recommendation. If you are formatting at the end, the time went to the wrong place.
The unrestricted subsidiary looks like an avoidance action. Do I model it as upside?
Model it as a counterfactual and let the counterfactual price it. Rebuild the waterfall as though the subsidiary's equity had remained Collateral and compare class by class. What you will find is that the claim is worth something only in the columns where the secured classes are not covered anyway, and nothing at all above that point. That makes it insurance rather than upside, and pricing it that way is a far more useful thing to hand a committee than an argument about it in the abstract.
What do I do if the plan fails the best-interests test at one corner of the range?
Say so, and then price the fix. The wrong response is to adjust the appraiser's recovery rates downward until the shortfall disappears — a liquidation analysis tuned to make a plan confirmable is the first thing an objecting creditor's expert takes apart, and it costs the advisor credibility on every other question in the case. The right response is structural, and the number that cures it is usually far smaller than the cost of litigating about it.
How much bankruptcy law do I actually need?
Enough to state a small number of claims exactly rather than a large number approximately. Section 506(a) bifurcation, 506(b) postpetition interest and its cushion limit, the 506(c) surcharge, the 502(b)(6) cap and how it is computed, 503(b)(9) and why services are not goods, 510(a) and the enforceability of a subordination agreement inside a case, and 1129(a)(7) as distinct from 1129(b)(2)(B). A wrong legal claim in a creditor presentation is more damaging than a missing one, so anything you cannot state cleanly should be left out.
About This Recovery Analysis / Chapter 7 Comparison Case Study
Recovery Analysis / Chapter 7 Comparison case study for investment banking interviews. 120-minute format covering chapter 7 liquidation analysis, asset recovery rates low and high, claims waterfall by priority class. Includes the full prompt, a model answer deck, a tied-out Excel model, a written memo and an audio walkthrough.
This case study sits in Investment Banking, under Restructuring & Special Situations. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
120-Minute Format
The time limit a real assessment would give you
Answer Deck
Included in the model answer
Excel Model
Included in the model answer
Memo
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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