In- and Out-of-Court Debt Restructuring in the Presence of Credit Default Swaps
|Speaker:||Mascia Bedendo, Bocconi University|
|Date:||Friday 10 February 2012|
|Location:||Streatham Court 0.28|
This paper empirically investigates whether the availability of credit insurance via credit default swaps (CDS) affects the debt restructuring process of distressed firms, as predicted by the empty creditors theory. Looking at the restructuring outcome (distressed exchanges versus Chapter 11 filings) of a sample of rated, non-financial U.S. companies during the 2007-2011 period, we do not find evidence that the access to credit insurance favours bankruptcy over a debt workout. Instead, we observe that the probability of filing for Chapter 11 during the crisis is significantly associated with high leverage and short-term debt ratios, and a simplified debt structure characterized by a high proportion of secured debt. Further checks on the determinants of the recovery values and on the characteristics of debt renegotiations confirm that the presence of CDS does not seem to have significant distortive effects on the debt restructuring process.