Out-of-Court Restructurings and the Resolution of Financial Distress : Section 3(A)(9) Compared to Investment-Bank-Managed Exchange Offers

To avoid Chapter 11 bankruptcy, financially distressed firms often undertake out-of-court restructurings, which take the form of exchange offers for firms with public debt outstanding. We examine the choice between potentially lower cost and faster offers of unregistered securities under Section 3(a)(9) of the Securities Act and investment-bank-managed exchange offers. We find that investment bank participation is negatively related to the level of commercial bank debt outstanding, but positively related to bank loan concessions, firm size, the number of debt contracts outstanding, and proposed debt reduction. Investment-bank-managed exchange offers comprise less senior debt, achieve greater debt reduction, and result in better post-restructuring operating performance