Strategic debt restructuring

Noe, Thomas and Wang, Jun (2000) Strategic debt restructuring. Review of Financial Studies, 13 (4). pp. 985-1016.


We analyze a distressed firm indebted to many creditors. The firm's owners have the option of choosing the sequence of restructuring negotiations with the creditors. We show that sequencing flexibility is beneficial to firm owners, and that the optimal sequencing of restructuring negotiations involves exploiting the firm's liabilities to some creditors so as to moderate the demands of others. Moderately distressed firms will eschew renegotiations with creditors in strong bargaining positions. Severely distressed firms will extract concessions from all creditors. In this case, owners can gain if they can credibly commit to conditional restructuring agreements that link the concessions of one creditor to concessions by others.

Item Type: Article
Keywords: corporate debt, finance
Subject(s): Finance
Date Deposited: 09 Nov 2011 16:55
Last Modified: 24 Sep 2018 14:21
Funders: N/A

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