Project Ravensmoor — Distressed-for-Control IC Memo
A 4-hour Investment Committee Memo (Distressed-for-Control) case study with a complete model answer
The Situation
Ravensmoor Home Furnishings, Inc.
Ravensmoor Home Furnishings
- Sector
- Consumer discretionary / specialty retail — furniture, mattresses and home decor, sold through leased showrooms and online
- Size
- Geography
- Twenty-eight states, concentrated in the Southeast and lower Midwest; no international operations
- Ownership
- Situation
The Prompt
You are a principal at a special situations fund. The investment committee meets this afternoon, and the partner who covers retail credit has sent you a two-line note:
"Ravensmoor.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 240 minutes.
PART 1
The memorandum — five pages maximum
PART 2
The claims register
PART 3
The turnaround, and the enterprise value
PART 4
The recovery waterfall, and where value breaks
PART 5
The liquidation analysis
PART 6
The plan, and the rights offering
PART 7
Where you acquire it, priced
PART 8
Process, and who can hold you up
PART 9
Returns on the claim purchase price
PART 10
Named outcomes, and what you cannot know
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished memo and Excel model are in the solution set below.
- 0:00 – 0:30
read the documents, not the spreadsheet
- 0:30 – 1:00
the claims register and the liquidation
- 1:00 – 1:30
the turnaround and the three cases
- 1:30 – 2:20
the value, the waterfall and the breakpoints
- 2:20 – 2:45
the plan and the routes
- 2:45 – 3:05
the return, on the claim price
- 3:05 – 4:00
write, and stop modeling
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 is the answer
Build an enterprise value, walk it down the claims in strict priority, and find the class in which the last dollar lands. That class is neither paid in full nor paid nothing, which is exactly why it converts into the reorganized equity. Everything else in a distressed-for-control case is downstream of getting it right, and a memorandum that names the fulcrum without showing the waterfall has not answered the question it was asked.
Breakpoints, not point estimates
The useful output is a pair of enterprise values rather than a class label: the one below which the fulcrum stops receiving anything and the one above which it becomes money-good, both restated as multiples of run-rate earnings. A committee can then form its own view on the multiple and read its own answer off your exhibit. Where the peer median sits relative to the upper breakpoint tells you how much of the thesis is a valuation call rather than a credit call.
Recoveries by class, at more than one value
The exhibit an experienced reader looks for first is a table with the classes down the side in priority order and a range of enterprise values across the top. It shows the fulcrum rather than naming it, it makes the sensitivity visible without a separate page, and it lets a reader who disagrees with your multiple locate their own answer. One enterprise value is a claim; a range is an analysis.
Where you acquire it is a priced decision
Buying in the secondary market at a discount to par, backstopping a rights offering, and credit bidding in a section 363 sale are three different entry prices with three different degrees of certainty and three different control outcomes. Each has to be priced, not named. Market accumulation carries impact — taking down a majority of a thinly traded issue moves the price against you, and a blended entry above the screen price is the honest number.
A discounted rights offering moves value out of the class
An offering sized off fixed dollar uses issues the same number of discounted shares whatever the equity turns out to be worth. So a claim holder who does not fund its rights pays for the discount and the backstop fee and receives neither, and the dilution is far worse in the downside than in the base case, because the smaller the equity, the more of it the new money takes. This is why a loan-to-own position is a claim purchase plus a commitment, never a claim purchase alone.
Blocking is not controlling
A class accepts a plan on two tests: at least two-thirds in amount and more than one-half in number of the claims that actually vote. More than one-third in amount blocks. A position can therefore be large enough to stop any plan and still be unable to confirm one, particularly on the number test, where a buyer holding many purchased claims through one vehicle has an argument to make and no certainty. Section 1126(e) lets a court disqualify a vote that was not procured in good faith, so engineering the count is not a strategy.
The process is part of the underwrite
Out-of-court, prepackaged, prearranged and free-fall differ in months and in millions, and the difference between the best and worst is worth several points of recovery on the fulcrum class. Two of the four are usually unavailable, and the reasons are specific: a Trust Indenture Act sacred-rights provision means an out-of-court exchange cannot bind a holdout on principal or maturity, and an operating plan that depends on rejecting leases cannot be executed outside chapter 11 at all.
Returns are measured on the claim purchase price
The invested capital is what you paid for the claims plus what you fund into the offering, on their actual dates. The proceeds are your share of the reorganized equity at exit, measured against the reorganized capital structure and the new money. The pre-petition share count is canceled; a return computed on a price per share of the old equity is not a smaller version of the right answer, it is a different question.
The liquidation floor may be zero, and the memo has to say so
Section 1129(a)(7) guarantees an impaired creditor at least its chapter 7 recovery. If that recovery is nil, the protection is nil. The downside protection in a distressed-for-control position is the price paid, the size of the position and the terms negotiated into the commitment — not the lien. Writing that sentence out loud is the difference between a memorandum and a pitch.
Diligence is materially worse here, and that has a price
There is no data room, no management meeting, and no way to ask a question without becoming restricted and losing the ability to trade the claim. So each unknown has to be carried as a range and converted into points of recovery. The correct response to a large unpriced range is a smaller position and a better contractual term, not a more confident paragraph.
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: memo and Excel model, 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
- —Fulcrum security identification
- —Loan-to-own strategy design
- —Recovery analysis as the entry valuation
- —Turnaround plan underwriting
- —Downside protection through the capital structure
- —Recommendation under uncertainty
Memo
The written recommendation and how it was reached
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the memo, the Excel model 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 Memo (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 Ravensmoor — Distressed-for-Control IC Memo
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
Why is there no discounted cash flow?
Because a retailer twelve months out of chapter 11, with a store base it has never operated in the shape it is about to be in, does not have a ten-year forecast anyone should discount. It has a run-rate and a multiple, and the multiple is the argument. A discounted cash flow here puts a spurious decimal on the one input that is a judgment and changes nothing about which class is the fulcrum. State the omission and the reason; an unexplained absence is a hole, but a declared one is a position.
How do I know which security to buy without doing every class?
You do the waterfall once and read it. Build the enterprise value, subtract the claims that are paid in cash and the facility that is refinanced, then pay the classes down in order. The class where the money runs out is the one to own. What takes the extra ten minutes is solving for the enterprise values at which that class changes, because those two numbers tell a committee how much of your thesis is valuation and how much is credit.
Should the memo recommend buying to two-thirds of the class?
Work out what two-thirds actually buys before you pay for it. Acceptance needs two-thirds in amount and a majority in number of the claims voting, so the amount test alone does not deliver a class. If the number test is out of reach at any price, the marginal block of claims buys a threshold you cannot use, and the money is better spent on the new-money commitment that converts a blocking position into a controlling one. Price the marginal claim and say why you stopped.
Is it realistic to assume I can buy a majority of the issue at the screen price?
No, and assuming it is one of the clearest tells that a candidate has not traded a claim. A thinly held issue moves against a buyer taking down real size, and the honest model is a tranche ladder with the price rising through it and a blended entry above the market. It also matters for the recommendation, because the ceiling you set is a blended ceiling, not a first-tranche one.
What does the rights offering have to do with control?
Everything. Converting a majority of a class that owns a minority of the reorganized equity leaves you with a large minority of the company. The offering and the backstop fee are what carry a position across fifty percent, and because the offering is priced at a discount to plan value, the holder who declines to fund pays for that discount without receiving it. The claim gets you to the table. The check gets you the company.
How should I handle the things I cannot find out?
Price them. Convert each unknown into a range on the operating case, then into enterprise value, then into points of recovery on your class, and total them. If the total exceeds the discount at which you are buying, that is not a reason to pass — it is a reason to size smaller and to negotiate a contractual protection, such as a valuation-based termination right on the backstop commitment. A memo that lists uncertainties without pricing them is recommending a price it cannot defend.
Does the equity trading above zero tell me anything?
Only about the register. In a capital structure this levered the common is out of the money across the whole plausible range of enterprise values, and a small positive price is option value in a retail-heavy shareholder base. It is not evidence about value and it should not appear in the analysis. What does carry information is where the debt trades, because marking the whole capital structure at market gives you the enterprise value the market is actually underwriting — and the gap between that and yours is the trade.
Is a memorandum really the right deliverable for this?
Yes, and it is why the case ships no deck. An investment committee decision on a claim purchase is a written argument: what we buy, at what price, through what process, what we own if it fails, and what we cannot know. Slides would fragment an argument that has to hold together across five linked questions. The exhibits that earn their place — a recovery table across a range of values, and a breakpoint table beneath it — fit on half a page inside the memo.
About This Investment Committee Memo (Distressed-for-Control) Case Study
Investment Committee Memo (Distressed-for-Control) case study for private equity interviews. 240-minute format covering fulcrum security identification, loan-to-own strategy design, recovery analysis as the entry valuation. Includes the full prompt, a written memo, a tied-out Excel model and an audio walkthrough.
This case study sits in Private Equity, under Investment Committee Memos. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
240-Minute Format
The time limit a real assessment would give you
Memo
Included in the model answer
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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