A company has a $200 million senior secured term loan and $150 million of unsecured bonds. In Chapter 11, the enterprise value is determined to be $250 million. Calculate recoveries for each class under an absolute priority rule waterfall. Then identify which security is the fulcrum and explain its significance.

Senior secured claim $200M gets paid first from $250M, leaving $50M. Unsecured claims $150M receive the remaining $50M, recovering 33.3 cents on the dollar. Equity recovers nothing. The senior secured loan recovers 100% ($200M). The fulcrum security is the unsecured bonds because they are the most junior class that receives a partial recovery. The fulcrum security is typically entitled to the equity of the reorganized entity because the value “breaks” in that class; it drives the restructuring negotiations as the residual claimant. Follow-up pressure: (1) If the enterprise value were $180M, what is the recovery for the unsecured bonds and which class becomes fulcrum? (2) How would a priming $75 million DIP facility approved in the bankruptcy change the calculus? (3) Explain what a “cramdown” means in this context and how the fulcrum class might be affected.