Leda ’95 Serves as Keynote for Seminar in Finance

Posted on 11/9/2018 1:09:35 PM

On November 5, 2018, James Leda gave a presentation to Professor Daniel Lawson’s finance seminar class (FIN422). Leda is a managing director at KRyS Global USA. His specialty is “distressed” capital – companies that have filed for bankruptcy or have a high-probability of filing. Jim is a member of the IUP Eberly College of Business and Information Technology Hall of Distinction and a member of the Foundation for IUP Board of Directors.

James Leda '95, keynote for Seminar in Finance, with Eberly students November 5, 2018.Leda’s lecture identified the key aspects of Chapter 11 bankruptcy, including the plan of reorganization, bankruptcy court supervision, exclusivity, the absolute priority rule, executory contracts, avoidance actions, and creditors’ rights. Leda went in-depth about the different key players of the Chapter 11 bankruptcy process. Debtors, the Official Committee of Unsecured Creditors (OCUC), secured creditors, governmental agencies (EPA, SEC, JOD, etc.), unions, the Pension Benefit Guaranty Corporation (PBGC), trustees, buyers, critical vendors, and executory contracts all play a part in bankruptcy.

He explained some of the different ratios that a lender could look at to determine how well a company can pay off its debts. Times Interest Earned is a popular metric that shows the ability (or inability) of a company to pay off the current period’s interest expenses by its earnings before interest, taxes, depreciation, and amortization (EBITDA). Another popular metric is the quick ratio. The quick ratio is the current assets minus inventory over current liabilities. This shows how able the company is to cover its current liabilities by its current assets, excluding inventory as it is more illiquid compared to other current assets.

In 1968, a professor of finance at NYU-Stern, Edward Altman, developed a model to predict an organization’s likelihood of bankruptcy. The formula assigns a coefficient to certain ratios of a company to come up with an overall score. A score above 3 indicates solvency, below 1.8 indicates a high probability of filing, and in-between is the “gray area”. Leda explained how this model is an industry standard for measuring a company’s financial health.

Coefficient                          RatioRatio Type 
 1.2Working Capital/Total Assets (X1)Liquidity 
 1.4Retained Earnings/Total Assets (X2) 

Solvency 

 3.3EBIT/Total Assets (X3) Profitability 
 0.6MV of Equity/BV of Debt (X4) Solvency 
 1.0Sales/Total Assets (X5) Activity 

Z-Score=1.2(X1) + 1.4(X2) + 3.3(X3) + .6(X4) + 1.0(X5)

Much of the lecture was focused on the natural tension between creditors with different levels of seniority (e.g., unsecured bonds versus subordinated bonds) and the resulting valuation fights. A mock bankruptcy procedure was then held in which students negotiated for their constituency’s valuation based on financial statements and ratios of a real company. The two groups, unsecured debt holders and subordinated debt holders, argued the value of the company in favor of their position in the company. This activity was interesting due to its required combination of knowledge in the industry, accounting, finance, and bankruptcy.

Finance student Tim McMullen, appreciated Leda’s presentation, “Leda talked to the students about different types of corporate bankruptcy. He presented a very interactive case to test our knowledge of financial concepts in relation to corporate bankruptcies. It was a wonderful experience to meet such a successful IUP business alumnus.”