The Cram-Down Decade

You met your obligations; your employer didn't. Result: You're screwed.
By Daniel Gross
Posted Friday, May 20, 2005, at 1:11 PM PT

It may seem awfully premature to start thinking about defining the decade in finance. But if you start counting from Jan. 1, 2000, it's more than half over. And in this age of the Feiler Faster thesis, it's never too early.

And so Moneybox hereby declares the zeros (the oughts?) the Decade of the Cram Down.

In corporate finance, a "cram-down deal" is defined as a transaction "in which stockholders are forced to accept undesirable terms, such as junk bonds instead of cash or equity, due to the absence of any better alternatives." More broadly, it's what happens when stakeholders who have met their obligations are nonetheless forced to accept returns or compensation that are far less than they were promised. Frequently, cram downs occur because the entity charged with managing the investment has screwed up—it frittered away cash or went bankrupt. And this is the theme that is defining personal, corporate, and government finances this decade.