[책] Corporate Financial Distress and Bankruptcy

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Ch.10: Corporate Governance in Distressed Firms

Changes in Ownership and Control

When distressed firms restructure their debt, there are often siginificant changes in the ownership structure of the firm's residual claims. This occurs for several reasons. The primary reason is that in a bankruptcy restructuring, the original equity holders often receive little or no shares in the reorganzied firm. Most of the stock is distributed to former creditors, who become the new owners of the company. Further, investors who specialize in investment in distressed firms frequently purchase claims from numerous creditors, and may convert these consolidated claims into sizeable equity positions. The size of these equity stakes is often sufficient to give the investor control of the reorganized firm. Finally, there is sometimes an infusion of equity to the reorganized firm from an investor as part of the restructuring plan.

The earliest studies of ownership changes for distressed firms after the 1978 Bankruptcy Reform Act did not find a great deal of control activity for the forms studied. A possible interpretation is that the structure of Chapter 11, under which incumbent management remains in control, discouraged acquisitions that is part of a reorganization plan requires creditor approval, making hostile acquisitions of firms in Chapter 11 more difficult. Further, other firms in the same industry that would be likely bidders may be distressed themselves at the same time. Hotchikiss and Mooradian(1998) examines these issues for a sample of 55 transactions in which firms in Chapter 11 are acquired by another public company. They find that bankruptcy targets are in fact most often acquired by firms in the same industry. The bidding firm often has some prior relationship with the bankrupt firm. For example, they may have previously purchased some assets of the target. There are often multiple bidders involved--18 out of 55 cases, which is at least as high as has been found for studies of nondistressed firms. Prices paid, however, are lower than those received for nonbankrupt targets in the same industry--this study finds discounts of 45 percent relative to prices paid for nonbankrupt targets in the same industry. However, these acquisitions do appear to lead to successfyl restructurings, in that the postmerger cash flow for the combined firm increases relative to the prebankruptcy levels, and the increase is greater than is observed for acquisitions of similar nonbankrupt companies.

Though changes in control were less common during the early life of Chapter 11, equity distributions under reorganization plan still lead to a concentration of the firm's ownership in the hands of prior creditors. Gilson(1990) studies 111 publicly traded companies that experienced severe financial distress between 1979 and 1985, 61 of which filed for Chapter 11. For the 61 bankruptcies, on average 80 percent of the common stock in the .....[preview Not allowed]


...[Con]trol can purchase a block of debt, which when converted to equity in a restructuring would leave them with a controlling stake in the company. Certain investors have, in fact, developed a reputation for using this strategy to gain control of firms in bankruptcy, and as a result manage a portfolio of investments in the equity of firms that have emerged from Chapter 11. ....

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도서 개요
A comprehensive look at the enormous growth and evolution of distressed debt, corporate bankruptcy, and credit risk default

This Third Edition of the most authoritative finance book on the topic updates and expands its discussion of corporate distress and bankruptcy, as well as the related markets dealing with high-yield and distressed debt, and offers state-of-the-art analysis and research on the costs of bankruptcy, credit default prediction, the post-emergence period performance of bankrupt firms, and more.

Edward I. Altman (New York, NY) is the Max L. Heine Professor of Finance at the Stern School of Business, New York University. He received his MBA and PhD in finance from the University of California, Los Angeles. Edith Hotchkiss (Chester Hill, MA) is Associate Professor of Finance at Boston College. She received her PhD from the Stern School of Business and her BA from Dartmouth College.


도서정보 더보기
제목 Corporate financial distress and bankruptcy: predict and avoid bankruptcy, analyze and invest in distressed debt
저자 Edward I. Altman, Edith Hotchkiss
에디션 3, 일러스트
발행인 John Wiley and Sons, 2005
ISBN 0471691895, 9780471691891
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