 Renegotiation Frictions and Financial Distress Resolution: Evidence from CDS SpreadsMurillo Campello, Tomislav Ladika and Rafael Matta Review of Finance, 2019, vol. 23, issue 3, 513-556 Abstract: We study how renegotiation frictions impact distressed debt resolution and ex-ante financial contracting. We do so by exploiting an event that exogenously reduced the costs that syndicated lenders incur when renegotiating debt out of court, without affecting in-court restructuring costs (IRS Regulation TD9599). CDS contracts insure creditors against in-court bankruptcy losses and CDS spreads reflect the shadow price of bankruptcy risk. Using a triple-differences approach, we show that CDS spreads fell by record figures on the event’s announcement, with declines concentrated among distressed firms that relied most on syndicated loans. Distressed firms’ loan renegotiation rates more than doubled, as banks agreed to extend loan maturities in exchange for higher interest payments. Those firms’ access to new syndicated loans increased while associated interest markups declined. Keywords: Loan renegotiation; Taxes; Bankruptcy; Credit default swaps; Credit access (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:revfin:v:23:y:2019:i:3:p:513-556. Ordering information: This journal article can be ordered from Access Statistics for this article Review of Finance is currently edited by Marcin Kacperczyk More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC. |
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