Distressed Debt Restructuring in the Presence of Credit Default Swaps
41 Pages Posted: 27 Aug 2010 Last revised: 15 Jan 2015
Date Written: December 10, 2014
The availability of credit insurance via credit default swaps (CDSs) has been closely associated with the emergence of empty creditors. We empirically investigate this issue by looking at the debt restructurings (distressed exchanges and bankruptcy filings) of rated, non-financial U.S. companies over the period Jan 2007 - Jun 2011. Using different proxies for the existence of insured creditors, we do not find evidence that the access to credit insurance favors bankruptcy over a debt workout. However, we document higher recovery prices following a distressed exchange in firms where empty creditors are more likely to emerge.
Keywords: Credit default swaps, empty creditors, debt restructuring
JEL Classification: E51, G32, G33
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