Saving Troubled Stutts Corporation: Information Known Only to Decker

This case, part of a series (see also UVA-QA-0712, UVA-QA-0714, and UVA-QA-0715), contains information known only to Decker. Two individuals own all the capital in Stutts Corporation. Decker owns all the debt and Evenson owns all the equity. Unless Decker and Evenson supply workout loans, Stutts will become bankrupt immediately. If they do provide the loans, Stutts will go into three possible states: recover, restructure, liquidate. The payouts to Decker and Evenson differ in each state. The two parties have differing probabilities for these three states and differing budget limits for adding capital; probabilities and budgets are private, confidential information. Students playing each role will negotiate, in pairs, a deal for the additional financing of Stutts. Without state-contingent side payments and/or altered ownership arrangements, players cannot strike a deal that is good for both sides, based on their differing probabilities and budget constraints. Students will carry out a preliminary negotiation, discuss it in class, and then have a chance to conduct a final analysis, based on new ideas from class discussion.