The Administrative Costs of Debt Restructurings: Some Recent Evidence

Abstract:     

I reexamine direct restructuring costs in light of recent developments for reorganizing distressed firms, such as prepackaged bankruptcies, failed highly leveraged transactions (HLTs), "vulture" investors, and pre-restructuring bondholder committees. Prepackaged bankruptcy costs are lower than in traditional Chapter 11 filings and have costs similar to exchange offers. Fees in Chapter 11 are lower if the firm is an HLT, but these savings decline as the ratio of public debt to total debt increases. Direct costs of Chapter 11 are also lower when vulture investors are involved in the restructuring, which is consistent with the view of vultures as facilitating, rather than complicating, debt restructurings.

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