Tracor

Situation

Tracor was a company with $1 billion in sales, virtually all of which was defense-related. Shortly after a buyout in the early 1990s, Tracor went bust, with more than $1 billion in debt.

Engagement

The Tracor Board cared deeply about old equity recoveries and was willing to exercise its negotiating leverage related to exclusivity and taxes. This opened a window of opportunity in discussions with the bank and bondholder creditors.Gordian Group split Tracor into its component parts and gave what were perceived by others as the more "attractive" parts largely to the creditor groups. Gordian Group concentrated old equity’s recovery into the "ugly" defense business through a package of common stock and warrants representing a 50% ownership position.

Outcome

Ultimately, old equity’s package grew to more than $400 million in value. It received this consideration through a bankruptcy plan that saw senior creditors initially receiving a 66% recovery and junior bondholders initially receiving less than a 10% recovery; an unprecedented result.Using conventional wisdom, old equity would have been wiped out. Instead, old equity hit a home run; and incredibly, achieved a higher recovery than the junior bondholders.