Do Empty Creditors Matter? Evidence from Distressed Exchange Offers

42 Pages Posted: 8 Feb 2012 Last revised: 7 Dec 2015

See all articles by Andras Danis

Andras Danis

Central European University (CEU)

Date Written: October 5, 2015


In this paper, I examine the effect of credit default swaps (CDSs) on the restructuring of distressed firms. Using a sample of U.S. distressed exchange offers during the period 2006-2011, I show that the participation rate among bondholders is significantly lower if the firm has CDSs traded on its debt. To address endogeneity concerns, I use the introduction of the Big Bang Protocol as a natural experiment. The results suggest that firms with CDSs find it difficult to reduce debt out-of-court. This is important because it can increase the likelihood of future bankruptcy, which is inefficient. The findings are consistent with the empty creditor hypothesis, which posits that bondholders who are hedged with CDSs are less likely to participate in a debt restructuring. The paper also contains direct evidence for the existence of empty creditors.

Keywords: CDS, empty creditors, distressed exchange offer, restructuring, bankruptcy

JEL Classification: G33, G34

Suggested Citation

Danis, Andras, Do Empty Creditors Matter? Evidence from Distressed Exchange Offers (October 5, 2015). Available at SSRN: or

Andras Danis (Contact Author)

Central European University (CEU) ( email )

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Vienna, Lower-Austria and Wien 1100

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