In- and Out-of-Court Debt Restructuring in the Presence of Credit Default Swaps

36 Pages Posted: 7 Apr 2011

See all articles by Mascia Bedendo

Mascia Bedendo

University of Bologna - Department of Management

Lara Cathcart

Imperial College Business School

Lina El-Jahel

University of Auckland Business School

Date Written: December 1, 2010

Abstract

This paper investigates whether the availability of credit insurance via credit default swaps (CDS) has inuenced the debt restructuring process in a sample of U.S. reference entities. Contrary to the predictions of the empty creditors theory, we do not find evidence that the presence of CDS favors bankruptcy over a private workout. The main determinants of the probability of filing for bankruptcy in the 2008-2009 crisis are leverage and short-term debt ratios, the proportion of secured debt, and a simplified debt structure concentrated on bank debt. A significant increase in private workouts follows the introduction of the 2009 Recovery Act.

Suggested Citation

Bedendo, Mascia and Cathcart, Lara and El-Jahel, Lina, In- and Out-of-Court Debt Restructuring in the Presence of Credit Default Swaps (December 1, 2010). CAREFIN Research Paper No. 24/2010, Available at SSRN: https://ssrn.com/abstract=1799923

Mascia Bedendo (Contact Author)

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna, Bologna 40126
Italy

Lara Cathcart

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 (0) 20 7594 9126 (Phone)
+44 (0) 20 7594 9189 (Fax)

Lina El-Jahel

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

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