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Out-of-Court Restructurings and the Resolution of Financial Distress: Section 3(a)(9) Compared to Investment-Bank-Managed Exchange Offers

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  • Robert M. Mooradian

    (Northeastern University)

  • Harley E. Ryan, Jr.

    (Georgia State University)

Abstract

To avoid bankruptcy, financially distressed firms often undertake out-of-court restructurings, which take the form of exchange offers for firms with public debt outstanding. We examine the choice between potentially lower cost, faster offers of unregistered securities under Section 3(a)(9) of the Securities Act and investment-bank-managed exchange offers. We find that investment bank participation relates negatively to commercial bank debt outstanding but positively to bank loan concessions, firm size, number of debt contracts outstanding, and proposed debt reduction. Investment-bank-managed exchange offers result in greater debt reduction and better postrestructuring operating performance.

Suggested Citation

  • Robert M. Mooradian & Harley E. Ryan, Jr., 2005. "Out-of-Court Restructurings and the Resolution of Financial Distress: Section 3(a)(9) Compared to Investment-Bank-Managed Exchange Offers," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1593-1624, July.
    • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:4:p:1593-1592
    DOI: 10.1086/430870
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    Cited by:

    1. Mascia Bedendo & Lara Cathcart & Lina El‐Jahel, 2016. "Distressed Debt Restructuring in the Presence of Credit Default Swaps," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(1), pages 165-201, February.
    2. András Danis, 2017. "Do Empty Creditors Matter? Evidence from Distressed Exchange Offers," Management Science, INFORMS, vol. 63(5), pages 1285-1301, May.

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