The Re-Emergence of Distressed Exchanges in Corporate Restructurings

Altman, Edward I. and Karlin, Brenda, The Re-Emergence of Distressed Exchanges in Corporate Restructurings (September 2009). NYU Working Paper No. FIN-09-012.

An important follow-on question to the DE [distressed exchange] restructuring strategy is over the subsequent performance of the firm and its securities. This has been assessed this by tracking the firms which completed a DE prior to 2008,4 separating them into several categories as of March 2009, including still operating, acquired and bankrupt (Chapter 7 or 11). Obviously, a DE that results in a subsequent bankruptcy proved to be an unsuccessful restructuring, and the DE merely delayed the eventual demise of the firm.

The subsequent fate of 57 DEs is listed in Appendix A. Of the 57, 26 (45.6 %) eventually went bankrupt (20 Chapter 11 reorganizations and 6 Chapter 7 liquidations). The time from the completion of the DE to bankruptcy ranged from less than one month to 18 years, with the median being about 2 years. Seventeen (30.0 %) DE firms were eventually acquired, while 11(19.3 %) were still operating in 2009. We could not find subsequent data on three firms. In conclusion, almost half of our DE sample declared bankruptcy subsequent to the exchange and the remaining are still operating as a going concern in one form or another in 2009.