Financial Distress and Restructuring Models

42 Pages Posted: 11 Nov 2008

See all articles by Yehning Chen

Yehning Chen

National Taiwan University

J. Fred Weston

University of California, Los Angeles (UCLA) - Finance Area

Edward I. Altman

New York University (NYU) - Salomon Center; New York University (NYU) - Department of Finance

Date Written: December 1994

Abstract

In recent years, the literature of financial distress has been enriched by the development of formal models. This paper develops a synthesis of that formal analysis, linking it to related finance literature and corporate strategies for distressed financial restructuring. Several key assumptions generate different results which predict the effects of financial distress on investment efficiency and restructuring strategy. Central to these strategies are the recontracting arrangements proposed between owners, creditors and other relevant stakeholders. The critical factors in the alternative models are: (1) the term structure of the firm s debt, (2) the role of the seniority of debts, (3) the effects of exchange offers, (4) the effects of an automatic stay on debt payments, and (5) the role of alternative voting rules.

Suggested Citation

Chen, Yehning and Weston, J. Fred and Altman, Edward I., Financial Distress and Restructuring Models (December 1994). NYU Working Paper No. FIN-94-024. Available at SSRN: https://ssrn.com/abstract=1299400

Yehning Chen (Contact Author)

National Taiwan University ( email )

1 Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

J. Fred Weston

University of California, Los Angeles (UCLA) - Finance Area ( email )

UCLA-AGSM
258 Tavistock Ave.
Los Angeles, CA 90049-3229
United States
310-472-5110 (Phone)
310-472-9471 (Fax)

Edward I. Altman

New York University (NYU) - Salomon Center ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0709 (Phone)
212-995-4220 (Fax)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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