In- and Out-of-Court Debt Restructuring in the Presence of Credit Default Swaps
36 Pages Posted: 7 Apr 2011
Date Written: December 1, 2010
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: Suggested Citation