Bank Loans and Troubled Debt Restructurings
46 Pages Posted: 4 Oct 2013 Last revised: 17 Jun 2015
Date Written: May 13, 2015
This paper examines the relation between the number and type of lenders that participate in corporate loan facilities and the nature of troubled debt restructurings. We find that loans from traditional bank lenders are significantly easier to restructure out of court than loans from institutional lenders. We also find that the existence of a past banking relationship between the borrower and the lead arranger of a syndicated loan adversely affects the ease of restructuring. Finally, we find that reliance on loans that are held in part by collateralized loan obligations (CLOs) is positively related to the likelihood of a prepackaged bankruptcy, consistent with greater holdout problems when loans are held by CLOs. Overall, our findings suggest that the role of banks in the restructuring process is quite different when bank loans are diffusely held or securitized.
Keywords: debt restructuring; Chapter 11; bankruptcy; private workout; holdout problem; institutional loans; CLOs
JEL Classification: G21, G23, G33
Suggested Citation: Suggested Citation