Distressed Debt Restructuring in the Presence of Credit Default Swaps

Mascia Bedendo · Lara Cathcart · Lina El‐Jahel

37 citations0/0 files storedJournal of money credit and banking

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Corporate Insolvency and Governance Credit Risk and Financial Regulations Financial Distress and Bankruptcy Prediction

Abstract

The availability of credit insurance via credit default swaps has been closely associated with the emergence of empty creditors. We empirically investigate this issue by looking at the debt restructurings (distressed exchanges and bankruptcy filings) of rated, nonfinancial U.S. companies over the period January 2007–June 2011. Using different proxies for the existence of insured creditors, we do not find evidence that the access to credit insurance favors bankruptcy over a debt workout. However, we document higher recovery prices following a distressed exchange in firms where empty creditors are more likely to emerge.

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References

2008Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market 1990Troubled debt restructurings 1994Anatomy of Financial Distress: An Examination of Junk-Bond Issuers 2007Does industry-wide distress affect defaulted firms? Evidence from creditor recoveries 2010Capital Structure and Debt Structure 2010The effect of banking crisis on bank-dependent borrowers 1991A Theory of Workouts and the Effects of Reorganization Law*2010Credit Default Swaps and the Credit Crisis

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2019Shareholder bargaining power and the emergence of empty creditors 2011Investment Risk, CDS Insurance, and Firm Financing 2021Credit Default Swaps around the World 2021Credit Default Swaps and Debt Overhang 2019Half-full or half-empty? Financial institutions, CDS use, and corporate credit risk 2016Credit derivatives as a commitment device: Evidence from the cost of corporate debt

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