Since the late 1990s, more than 25 domestic steel companies have filed for bankr
ID: 1235585 • Letter: S
Question
Since the late 1990s, more than 25 domestic steel companies have filed for bankruptcy. A combination of low prices with strong competition by foreign competitors and so-called "legacy costs" of unions are cited as the primary reasons why so many steel companies are filing for bankruptcy. In 2002, as Brownstown Steel Corp. was in the process of restructuring its loans to avoid bankruptcy, its lenders requested that the firm disclose full information about its revenues and costs. Explain why Brownstown's management was reluctant to release this information to its lenders.Explanation / Answer
Brownstown's management was reluctant to release this information to its lenders because they know they are broke. The company's solution as stated in the question to avoiding bankruptcy is to borrow more money, "was in the process of restructuring its loans to avoid bankruptcy".
If the lenders were to find out about such objectives they would abandon ship immedietly and the company would sink into bankruptcy. That is why they decided not to disclose any information to its lenders.
Hopefully this helped, best of luck.