Abstract

http://ssrn.com/abstract=224439
 
 

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Efficiency and Distribution in Financial Restructuring: The Case of the Ferruzzi Group


Alessandro Penati


Catholic University of the Sacred Heart of Milan

Luigi Zingales


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI)

December 23, 1997

CRSP Working Paper No. 466

Abstract:     
This paper analyzes the efficiency and distributional consequences of the largest out- of-court restructuring ever ($20 billion of debt). The restructuring was engineered by a five-bank committee composed of the largest creditors, which took effective control of the company at the onset of financial distress. We compare the payoffs obtained by creditors under the restructuring plan with those they would have obtained in the absence of it. We show that the plan implied a large redistribution among creditors with equal priority. This redistribution occurred without generating any apparent efficiency gain. When we factor in the value of control, we find that the restructuring plan favored the Restructuring Commit- tee, at the expense of other banks. Our analysis shows the importance of the allocation of control in financial restructuring and the possible efficiency costs of debt for equity swaps in restructurings. We discuss the implications of these findings for the debate on the optimal bankruptcy procedures.

Number of Pages in PDF File: 57

JEL Classification: G31, G32, G33

working papers series


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Date posted: November 6, 2000  

Suggested Citation

Penati, Alessandro and Zingales, Luigi, Efficiency and Distribution in Financial Restructuring: The Case of the Ferruzzi Group (December 23, 1997). CRSP Working Paper No. 466. Available at SSRN: http://ssrn.com/abstract=224439 or http://dx.doi.org/10.2139/ssrn.224439

Contact Information

Alessandro Penati
Catholic University of the Sacred Heart of Milan ( email )
Istituto di Economia Aziendale Via Necchi, 5
20123 Milano
Italy
+39 02 76232421 (Phone)
+39 02 76232420 (Fax)
Luigi Zingales (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

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National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
University of Chicago - Polsky Center for Entrepreneurship
Chicago, IL 60637
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
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References:  27
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