Research grant Corporate Restructuring: the Impact of Loan Sales and Credit Derivatives

Corporate restructurings involving a redeployment of assets into other activities provide an important way in which rms alleviate nancial distress. This paper examines the degree to which loan sales and credit derivatives markets assist or hinder restructurings. We show that loan sales lead to a postponement of restructuring. Furthermore, they may be inecient in the sense that the ini- tial value of the rm is greater if loan sales are precluded. Credit derivative transactions which permit lenders to adjust their credit exposure without giving up their rights to negotiate in out-of-bankruptcy restructurings accelerate restructurings.