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Do Empty Creditors Matter? Evidence from Distressed Exchange Offers

Andras Danis

Georgia Institute of Technology

December 2, 2013

We examine the effect of credit default swaps (CDSs) on the restructuring of distressed firms. Theoretically, we show that if bondholders are insured with CDSs, the participation rate in a restructuring decreases. Using a sample of distressed exchange offers, we estimate that the participation rate is 29% lower if the firm has CDSs traded on its debt, compared to an unconditional mean of 54%. We use the introduction of the Big Bang protocol as a natural experiment. The results suggest that firms with CDSs find it difficult to reduce debt out-of-court, which is inefficient because it increases the likelihood of future bankruptcy.

Number of Pages in PDF File: 60

Keywords: CDS, empty creditors, distressed exchange offer, restructuring, bankruptcy

JEL Classification: G33, G34

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Date posted: February 8, 2012 ; Last revised: December 3, 2013

Suggested Citation

Danis, Andras, Do Empty Creditors Matter? Evidence from Distressed Exchange Offers (December 2, 2013). Available at SSRN: http://ssrn.com/abstract=2001467 or http://dx.doi.org/10.2139/ssrn.2001467

Contact Information

Andras Danis (Contact Author)
Georgia Institute of Technology ( email )
Atlanta, GA 30332
United States
HOME PAGE: http://scheller.gatech.edu/danis
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