TY  - JOUR
AU  - Asquith,Paul
AU  - Gertner,Robert
AU  - Scharfstein,David
TI  - Anatomy of Financial Distress: An Examination of Junk-Bond Issuers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3942
PY  - 1991
Y2  - December 1991
UR  - http://www.nber.org/papers/w3942
L1  - http://www.nber.org/papers/w3942.pdf
N1  - Author contact info:
Paul Asquith
MIT Sloan School of Management
100 Main Street, E62-660
Cambridge, MA 02142
Tel: 617/253-7177
Fax: 617/253-0603
E-Mail: pasquith@mit.edu

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
M2  - featured in NBER digest on 1992-04-01
AB  - This paper examines the events following the onset of financial distress for 102 public junk bond issuers. We find that out-of-court debt relief mainly comes from junk bond - holders; banks almost never forgive principal, though they do defer payments and waive debt covenants. Asset sales are an important means of avoiding Chapter 11 reorganization; however, they may be limited by industry factors. If a company simply restructures its bank debt, but either does not restructure its public debt or does not sell major assets or merge, the company goes bankrupt. The structure of a company's liabilities affects the likelihood that it goes bankrupt; companies whose bank and private debt are secured as well as companies with complex public debt structures are more prone to go bankrupt. Finally, there is no evidence that more profitable distressed companies are more successful in dealing with financial distress; they are not less likely to go bankrupt, sell assets, or reduce capital expenditures.
ER  -