Efficiency and Distribution in Financial Restructuring: The Case of the Ferruzzi Group

57 Pages Posted: 6 Nov 2000  

Alessandro Penati

Catholic University of the Sacred Heart of Milan

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: December 23, 1997

Abstract

This paper analyzes the efficiency and distributional consequences of the largest out- of-court restructuring ever ($20 billion of debt). The restructuring was engineered by a five-bank committee composed of the largest creditors, which took effective control of the company at the onset of financial distress. We compare the payoffs obtained by creditors under the restructuring plan with those they would have obtained in the absence of it. We show that the plan implied a large redistribution among creditors with equal priority. This redistribution occurred without generating any apparent efficiency gain. When we factor in the value of control, we find that the restructuring plan favored the Restructuring Commit- tee, at the expense of other banks. Our analysis shows the importance of the allocation of control in financial restructuring and the possible efficiency costs of debt for equity swaps in restructurings. We discuss the implications of these findings for the debate on the optimal bankruptcy procedures.

JEL Classification: G31, G32, G33

Suggested Citation

Penati, Alessandro and Zingales, Luigi, Efficiency and Distribution in Financial Restructuring: The Case of the Ferruzzi Group (December 23, 1997). CRSP Working Paper No. 466. Available at SSRN: https://ssrn.com/abstract=224439 or http://dx.doi.org/10.2139/ssrn.224439

Alessandro Penati

Catholic University of the Sacred Heart of Milan ( email )

Istituto di Economia Aziendale Via Necchi, 5
20123 Milano
Italy
+39 02 76232421 (Phone)
+39 02 76232420 (Fax)

Luigi Zingales (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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