TY  - JOUR
AU  - Gertner,Robert
AU  - Scharfstein,David
TI  - A Theory of Workouts and the Effects of Reorganization Law
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 103
PY  - 1991
Y2  - May 1991
UR  - http://www.nber.org/papers/t0103
L1  - http://www.nber.org/papers/t0103.pdf
N1  - Author contact info:
Robert Gertner
Graduate School of Business
The University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL 60637
Tel: 773/702-7203
Fax: 773/702-0118;773/702-0458
E-Mail: rob.gertner@chicagobooth.edu

David S. Scharfstein
Harvard Business School
Baker 239
Soldiers Field
Boston, MA 02163
Tel: 617/496-5067
Fax: 617/496-8443
E-Mail: dscharfstein@hbs.edu
AB  - We present a model of a financially distressed firm with outstanding bank debt and public debt. Coordination problems among public debtholders introduce investment inefficiencies in the workout process. In most cases, these inefficiencies are not mitigated by the ability of firms to buy back their public debt with cash and other securities--the only feasible way that firms can restructure their public debt. We show that Chapter 11 reorganization law increases investment and we characterize the types of corporate financial structures for which this increased investment enhances efficiency.
ER  -