the web's biggest credit risk modeling resource.

Credit Jobs

Home Glossary Links FAQ / About Site Guide Search

Submit Your Paper

In Rememberance: World Trade Center (WTC)

Export citation to:
- Text (plain)
- BibTeX

Franks, Julian R. and Walter N. Torous, "A Comparison of Financial Recontracting in Distressed Exchanges and Chapter 11 Reorganizations", Journal of Financial Economics, Vol. 35, No. 3, (June 1994), pp. 349-370.

Abstract: We investigate the financial recontracting of firms completing distressed exchanges and those reorganizing under Chapter 11. We find that recovery rates for creditors, on average, are higher in distressed exchanges than in Chapter 11 reorganizations, as are equity deviations from absolute priority. The difference in deviations potentially provides valuable information on the higher costs of formal reorganization. Also, cash is used more extensively to redeem creditors' claims in Chapter 11 than in distressed exchanges. The greater use of cash can be attributed to provisions of the Bankruptcy Code that permit conservation of cash and facilitate asset sales.

JEL Classification: G33.

Keywords: Distressed exchanges, Chapter 11, Equity deviations, Bankruptcy costs.

Download paper (1,484K PDF) 22 pages