Strategic Debt Restructuring

Thomas Noe () and Jun Wang

The Review of Financial Studies, 2000, vol. 13, issue 4, 985-1015

Abstract: 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 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. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 2000
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The Review of Financial Studies is currently edited by Itay Goldstein

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