Out-of-court restructurings and the resolution of financial distress: Section 3(a)(9) compared to investment-bank-managed exchange offers

To avoid bankruptcy, financially distressed firms often undertake out-of-court restructurings, which take the form of exchange offers for firms with public debt outstanding. We examine the choice between potentially lower cost, faster offers of unregistered securities under Section 3(a)(9) of the Securities Act and investment-bank-managed exchange offers. We find that investment bank participation relates negatively to commercial bank debt outstanding but positively to bank loan concessions, firm size, number of debt contracts outstanding, and proposed debt reduction. Investment-bank-managed exchange offers result in greater debt reduction and better postrestructuring operating performance.