Investment Banks and Public Debt Exchange Offers in Financial Distress

44 Pages Posted: 7 Nov 2000

See all articles by Robert M. Mooradian

Robert M. Mooradian

Northeastern University, D’Amore-McKim School of Business, Finance Area

Harley E. Ryan

Georgia State University - Department of Finance

Date Written: October 2000

Abstract

This paper examines the relationship between investment bank participation in public debt exchange offers by financially distressed firms and the composition of the offer. Investment banks negotiate with bondholders on behalf of the firm, act as dealer manager for the exchange, promote the offer, and solicit tenders. We find that the structure of exchange offers is significantly related to whether an investment bank participates as an intermediary. Exchange offers with investment bank participation are characterized by significantly greater debt reduction and significantly less senior debt offered to bondholders. Investment bank participation is negatively related to the ratio of commercial bank debt relative to total debt, but positively related to commercial bank debt forgiveness. In general, the results suggest that investment banks and commercial banks perform both substitute and complementary roles in facilitating public debt exchange offers.

Suggested Citation

Mooradian, Robert M. and Ryan, Harley E., Investment Banks and Public Debt Exchange Offers in Financial Distress (October 2000). AFA 2001 New Orleans Meetings. Available at SSRN: https://ssrn.com/abstract=247555 or http://dx.doi.org/10.2139/ssrn.247555

Robert M. Mooradian (Contact Author)

Northeastern University, D’Amore-McKim School of Business, Finance Area ( email )

Boston, MA 02115
United States
617-373-5955 (Phone)
617-373-8798 (Fax)

Harley E. Ryan

Georgia State University - Department of Finance ( email )

University Plaza
35 Broad Street, Suite 1221
Atlanta, GA 30303-3083
United States
404-651-2674 (Phone)
404-651-2630 (Fax)

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