In re Pullman Const. Indus. Inc.
United States Bankruptcy Court for the Northern District of Illinois
107 B.R. 909 (1989)
Facts
Pullman Construction Industries, Inc., and its subsidiaries, Pullman Sheet Metal Works, Inc.; Preferred Piping, Inc.; and Mid-City Architectural Iron Co. (collectively, Pullman) (debtor), filed for Chapter 11 protection in United States bankruptcy court. Wells Fargo (creditor) had a first-priority security interest in all Pullman’s assets, the going-concern value of which was subject to some dispute. Pullman’s valuation experts used the capital asset pricing model (CAPM). Because Pullman did not have a publicly traded stock, the company’s beta—a measure of the relative volatility of a company’s stock price—was derived from a group of 18 publicly traded peer companies. Pullman’s experts arrived at 18 percent as the appropriate discount rate to apply to future cash flows. This discount rate resulted in $3,411,000 as the present value of free cash flows, to which $2,136,000 in nonoperating assets was added for a going-concern value of $5,547,000. This figure reflected a bump in anticipated revenues from 1989 to 1990 in the form of large commercial construction projects that Pullman hoped to obtain after confirmation of the bankruptcy plan. Wells Fargo sought an even higher valuation.
Rule of Law
Issue
Holding and Reasoning (Schmetterer, J.)
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