'Bank' Loan Ownership and Troubled Debt Restructurings

Abstract

This paper examines whether the number and type of lenders that participate in loan facilities are related to the nature of the troubled debt restructuring process. Using a hand-collected sample of debt restructurings both outside and within bankruptcy, we find that the likelihood of a successful out of court restructuring is significantly related to the identity of the firm's lenders. Overall, we find evidence that loans from traditional bank lenders are much easier to restructure out of court than loans from institutional lenders. Moreover, we find evidence that securitized commercial loans are more difficult to restructure due to holdout problems than publicly traded debt. Consistent with greater holdout problems in the institutional loan market, we find that reliance on institutional loans is positively related to the likelihood of a prepackaged bankruptcy.