DOCSLIB.ORG

The Effects of Restructuring Charges on Stock Price and Analyst Forecast Accuracy

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Effects of Restructuring Charges on Stock Price and Analyst Forecast Accuracy The Effects of Restructuring Charges on Stock Price and Analyst Forecast Accuracy A dissertation submitted to the Kent State University Graduate School of Management in partial fulfillment of the requirements for the degree of Doctor of Philosophy by Mary Hilston Keener May 2007 ACKNOWLEDGEMENTS I wish to thank my dissertation committee of Dr. Linda Zucca, and Dr. Michael Hu, and especially Dr. Ran Barniv, my committee chair, for their support and guidance in completing this dissertation. Also, I extend my thanks to Dr. Michael Ellis and Dr. Richard Kolbe who served as the graduate faculty representative and the moderator, respectively, during the final defense of this dissertation. I also wish to express gratitude to my parents, Tom and Jane Hilston, for their love, support, and encouragement throughout my life and in particular during my PhD program. In addition, I wish to thank my in-laws, Bob and Althea Keener, for their support as I have worked on my dissertation. I wish to thank my older brother, John, his wife, Dana, my younger brother, Chuck, and the rest of my family and friends for being extremely supportive and caring throughout my many years in school. I would like to extend special thanks to my husband, Jason, and my son, Peyton Robert. Peyton, thanks for understanding how busy Mommy has been since you arrived in April. Jason, without your endless encouragement, kindness, and love, I would never been able to complete this dissertation. This dissertation is dedicated to Jason and Peyton. ii TABLE OF CONTENTS Page Chapter 1 INTRODUCTION..………………………………………………... 1 1.1 Background and Purpose…………………………. 1 1.2 Types of Restructurings………………………….. 3 1.3 Hypotheses and Models………………………….. 3 1.4 The Importance of This Dissertation……………. 5 1.5 Summary…………………………………………. 6 Chapter 2 LITERATURE REVIEW………………………………………... 8 2.1 Introduction………………………………………. 8 2.2 (Essay 1) Financial Distress and Bankruptcy Literature…………………………………………. 16 2.3 (Essay 2) Value Relevance of Restructuring Charges 21 2.4 (Essay 3) Analyst Forecast Literature……………. 29 2.5 Summary………………………………………… 38 Chapter 3 ESSAY 1: DIFFERENCES IN FINANCIAL HEALTH FOR FIRMS TAKING RESTRUCTURING CHARGES 3.1 Background……………………………………. 41 3.2 Importance of Examining Financial Health…….. 42 3.3 Hypothesis Development……………………….. 43 3.4 Data Sources and Methodology………………… 43 iii 3.5 Empirical Results……………………………….. 51 3.6 Conclusions……………………………………... 57 3.7 Bibliography……………………………………. 59 Tables…………………………………………... 61 Chapter 4 ESSAY 2: THE VALUE RELEVANCE OF RESTRUCTURING CHARGES FOR FIRMS WITH VARYING LEVELS OF FINANCIAL HEALTH 4.1 Introduction…….………………………………. 81 4.2 Importance of Restructuring Charges…….…….. 81 4.3 Hypothesis Development……………………….. 84 4.4 Data Sources and Methodology………………… 85 4.5 Empirical Results……………………………….. 90 4.6 Conclusions……………………………………... 98 Bibliography……………………………………. 100 Tables…………………………………………… 103 Chapter 5 ESSAY 3: THE IMPACT OF RESTRUCTURING CHARGES ON ANALYST FORECAST ACCURACY, BIAS, AND REVISIONS 5.1 Background……………………………………… 116 5.2 Impact of Restructuring Charges on Analyst Forecasts…….…………………………………. 118 5.3 Hypotheses Development……………………….. 122 5.4 Data Sources and Methodology………………… 123 iv 5.5 Empirical Results……………………………….. 134 5.6 Conclusions……………………………………... 143 Bibliography……………………………………. 145 Tables…………………………………………… 150 Chapter 6 CONCLUSIONS………………………………………………… 169 6.1 Background, Purpose and Results……………… 169 6.2 Limitations……………………………………… 171 6.3 Future Research………………………………… 172 BIBLIOGRAPHY……………………………………………….. 173 v LIST OF TABLES Essay 1 Tables 1 Final Sample Determination………………………………………………………….............. 61 2 Firms in Sample Split by Year and SIC Division……………………………….…….……… 62 3 Descriptive Statistics for Full Sample....………..……………………………………..…........ 64 4 Distress Classification Contingency Tables…………………………………………………... 66 5 Descriptive Statistics for Observations Classified the Same by Both Models..…………........ 67 6 Independent Sample t-tests and Wilcoxon Z-statistics for Mean Differences Between Sample Firms …………................................................................................................... 69 7 Independent Sample t-tests and Wilcoxon Z-statistics for Mean Differences Between Sample Firm-Events …………......................................................................................... 71 8 Ohlson (1980) Logistic Regression Model Results for Distressed and Non-Distressed Companies for All Firms……………………….…………………………………......... 73 9 Ohlson (1980) Logistic Regression Model Results for Distressed and Non-Distressed Companies for All Firm-Event Observations…………….…….………………………. 74 10 Predicting Bankruptcy Using Equation 1.4 for Those Restructuring Firms Classified as Distressed………………………..……………………………………………………… 75 11 Predicting Bankruptcy Using Equation 1.4 for Those Restructuring Firm-Event Observations Classified as Distressed………………….….…………………………… 76 12 Predicting Bankruptcy Using Equation 1.4 for All Restructuring Firms……………………..77 13 Predicting Bankruptcy Using Equation 1.4 for All Restructuring Firm-Event Observations.. 78 14 Modified Ohlson Regression Model Results for Multinomial Logistic Regression Model for All Firm-Event Observations with Different Classification Groups...........… 79 Essay 2 Tables 1 Final Sample Determination…………………………………...….…………………......….. 104 2 Firms in Sample Split by SIC Division ……...…………………………………..………….. 105 3 Descriptive Statistics………………......………..……………………………...…….……… 106 4 Price and Return Model Regressions for Firms……………………………………………... 108 5 Price and Return Model Regressions for Firm-Event Observations….……………………... 110 6 Regressions of Three Versions of the Price Model for Firms………………………………. 112 7 Regressions of Three Versions of the Return Model for Firms………………..……………. 114 Essay 3 Tables 1 Final Sample Determination…………………………………………...............…...……….. 151 2 Firms in Sample Split by SIC Division ……...…………………………………..………….. 153 3 Descriptive Statistics for Full Sample....………..…………………………………………… 154 4 Descriptive Statistics for the Analyst Forecast Accuracy and Bias Portion of the Essay..….. 155 vi 5 Univariate Data on Forecast Errors for the Year Before and the Year After Restructuring Charges..………………………………………...………………………………..…… 156 6 Regressions of Equation (3.5) where h=1 with Firm-Quarter Observations ......................… 157 7 Regressions of Equation (3.5) where h=2 with Firm-Quarter Observations ......................… 159 8 Regressions of Equation (3.5) where h=3 with Firm-Quarter Observations ......................… 160 9 Regressions of Equation (3.5) where h=5 with Firm-Quarter Observations ......................… 161 10 Regressions of Equation (3.7) for All Firm-Year Observations: Accuracy ......................… 162 11 Regressions of Equation (3.8) for All Firm-Year Observations: Bias ..............................… 164 12 Regressions of Equation (3.8) for All Firm-Year Observations: Positive Bias ................… 166 13 Regressions of Equation (3.8) for All Firm-Year Observations: Negative Bias ..............… 168 vii CHAPTER 1 INTRODUCTION 1.1 Background and Purpose This dissertation presents three essays that examine the usefulness of reported operational restructurings to corporations, financial analysts, and investors. The main theme that binds the three essays is that, depending on the financial health of the firm taking the charge, each represents an empirical study of how restructuring charges differentially impact various user groups. While each of the three essays can be read independently, together they address specific significant issues in the more general area of the effects of restructuring charges on firms. Because restructurings have become “a staple of management life during the past decade” (Bowman et al. 1999), this dissertation is quite relevant to the accounting profession. In just the first three months of 2006, many major companies including Hewlett-Packard, Ford, Kraft, Del Monte, and Xerox have announced operational restructuring efforts, and this attests to the timeliness of the findings in this dissertation (Lawton 2006, McCracken and White 2006, Ellison 2006, Berman 2006, Bulkeley 2006). Daniels et al. (1995) define a restructuring as typically involving a firm-level action where personnel are terminated, product lines are eliminated, and assets are disposed of. By examining the effects of restructuring announcements on analyst forecasts and the impact of restructuring charges on price, this dissertation sheds some light on the usefulness of operational 1 2 restructurings to firms. Kross et al. (2001) define operational restructurings as typically involving the asset side of the balance sheet and debt and equity restructurings as typically involving the right-hand side of the balance sheet. This dissertation examines only operational restructurings. Operational restructurings are multi-dimensional corporate changes undertaken by companies usually to either improve efficiency or to avoid filing for bankruptcy. Operational restructuring projects typically include some combination of workforce reductions, asset writedowns, the disposal of certain assets and facilities, product line discontinuations, the reconfiguration of facilities, plant relocations, or the closing of certain plants and facilities (Lopez 2002).1 This dissertation separately examines several groups of firms. In particular, it compares firms in financial distress that operationally restructure in an attempt to avoid bankruptcy with financially healthy firms that restructure
Load more

Recommended publications
  • Underwriting; Development of the Restructuring Plan
    Chapter 5 Underwriting; Development of the Restructuring Plan Executive Summary Section 5-1 This chapter describes the PAEs actions for financial underwriting of the M2M transaction and the development of the Restructuring Plan. The PAE will determine the project’s rents, expenses, and deposits to the reserves under various scenarios. The PAE will then size the first and second mortgages, and third mortgage, if needed, and determine the amount of claim payable by FHA, as well as the sources and uses in the transaction, and the owner’s financial return. The results of this underwriting, the due diligence described in Chapter 4, the tenant comments, and owner negotiations are consolidated in the draft Restructuring Plan Package submitted to the OAHP Preservation Office. The PAE should work cooperatively with the owner and lender as needed throughout this process. Underwriting Model Section 5-2 A. General. OAHP has provided an Underwriting Model for use in completing the financial underwriting of M2M transactions. A copy of the Model is available on OAHP’s Web site or can be obtained through the OAHP Preservation Office. Use of the Model is required and helps meet the unique requirements of this program that will not be present in other underwriting models. However, the Model is only an aid and may not be appropriate or complete for every case; the PAE remains responsible for its own conclusions, and for appropriately addressing unusual conditions that may not be fully considered by the model or this Guide. B. Using the Model. PAEs are responsible for using the most recent, appropriate model and generally following the procedures reflected therein.
    [Show full text]
  • Policy Brief 13-3: Debt Restructuring and Economic Prospects in Greece
    Policy Brief NUMBER PB13-3 FEBRUARY 2013 a significant part of even the reduction for private holdings. A Debt Restructuring and December package of official sector relief (in the form of lower interest rates and support for a buyback of about half of the Economic Prospects restructured privately held debt) set the stage for resumption of IMF and euro area program disbursements and restored the conditions for managing the remaining debt over the next few in Greece years if reasonable growth and fiscal expectations are achieved. Over the longer term, however, it is unclear that Greece William R. Cline will be able to reenter private capital markets by 2020 even if its debt level is down to the range of about 120 percent of William R. Cline, senior fellow, has been associated with the Peterson GDP. The damage to its credit reputation from restructuring Institute for International Economics since its inception in 1981. His with a large haircut seems likely to leave it in a more difficult numerous publications include Resolving the European Debt Crisis (coed- borrowing position than other euro area sovereigns even if itor, 2012), Financial Globalization, Economic Growth, and the Crisis it achieves comparable debt levels. Further relief on official of 2007–09 (2010), and The United States as a Debtor Nation (2005). sector claims thus seems likely to be needed in the future, Note: I thank Jared Nolan for research assistance. For comments on an but is not urgent at present because almost all of Greece’s earlier draft, I thank without implicating Joseph Gagnon and Edwin borrowing needs should already be covered for the next few Truman.
    [Show full text]
  • Creating a Framework for Sovereign Debt Restructuring That Works 1
    Creating a Framework for Sovereign Debt Restructuring that Works 1 Martin Guzman2 and Joseph E. Stiglitz3 Abstract Recent controversies surrounding sovereign debt restructurings show the weaknesses of the current market-based system in achieving efficient and fair solutions to sovereign debt crises. This article reviews the existing problems and proposes solutions. It argues that improvements in the language of contracts, although beneficial, cannot provide a comprehensive, efficient, and equitable solution to the problems faced in restructurings—but there are improvements within the contractual approach that should be implemented. Ultimately, the contractual approach must be complemented by a multinational legal framework that facilitates restructurings based on principles of efficiency and equity. Given the current geopolitical constraints, in the short-run we advocate the implementation of a “soft law” approach, built on the recognition of the limitations of the private contractual approach and on a set of principles – most importantly, the restoration of sovereign immunity – over which there may be consensus. We suggest that in a context of political economy tensions it should be impossible for a government to sign away the sovereign immunity either for itself or successor governments. The framework could be implemented through the United Nations, or it could prompt the creation of a new institution. Keywords: Sovereign Debt Crises, Sovereign Debt Restructuring, Debt Contracts, International Lending 1 We are indebted to Sebastian
    [Show full text]
  • 223(A)(7) Underwriting Standards Comparison Between Normal Housing Processing and OMHAR Debt Restructuring Transactions*
    223(a)(7) Underwriting Standards Comparison Between Normal Housing Processing and OMHAR Debt Restructuring Transactions* HUD Multifamily Hub or Program Center OMHAR To refinance existing loan to reduce interest rate To refinance existing loan, re-underwrite at market Purpose of program and/or extend amortization period in order to rents/expenses/interest rates and restructure debt in reduce risk of default. order to prevent default upon reduction of rents. 2530 Required for new or proposed principal partners. Required for all restructurings. Debt Service 1.11 Generally 1.2 to 1.4 to determine supportable debt. Coverage Ratio Loan-to-Value Ratio LTV not relevant. Less than or equal to 100% LTV. Lesser of original principal balance, or current Lesser of current UPB, or DS coverage or LTV Loan Ceiling UPB plus rehab and transaction costs, or DS criterion. coverage criterion. Loan Term Remaining term + 12 years. Remaining term + 12 years. 100% financeable, to the extent it can be Owner/borrower responsible for 50% of transaction Transaction Costs supported in mortgage. Refund half of fees costs for new takeout. Appraisal Standards Not required for A7. PAE obtains limited-scope appraisal for restructuring. Inspection Owner is required to submit their work write-up and Standards/ Owner/mortgagee is required to submit work estimates for 20-year reserve for Replacement write-up and estimates for 12-year reserve for replacements/repairs. PAE obtains independent Reserve replacement. HUD Field Office reviews. inspection (PCA), OMHAR reviews. OCAF applied Requirement annually to required deposit. PAE prepares draft environmental review for all Environmental HUD Field Office performs environmental review projects undergoing restructuring.
    [Show full text]
  • When It Comes to Restructuring Corporate Debt, Care Needs to Be
    Legal and Regulatory | Debt restructuring When it comes to restructuring corporate debt, care needs to be taken that trade is prioritised and the “each lender for itself” approach is suppressed for a better collective outcome, says Geoff Wynne n a market of low commodity prices and global trade growing at marginally less than world GDP, it is no surprise that some trade finance facilities are looking distinctly fragile. This article takes Ia closer look at restructurings involving trade finance obligations and, importantly, sets out the advantages of giving “true” trade debt priority. Historic context The argument started way back in the 1980s, particularly with the Latin American debt crises, where short term debts were paid – country restructurings paid short term debts because they matured quickly and should be outside long term restructurings. There was an assumption that because it was short term, it was trade debt, but this was www.tfreview.com 69 P69_TFR_Vol19_Iss10_Geoff Wynne.indd 69 06-Sep-16 2:39:02 PM Legal and Regulatory | Debt restructuring “The first question not always the case. would be paid because it was required for business There is certainly no evidence that any legal continuity. is, where does the system actually grants trade debt priority. But as Here is another clue that there could be better many know, the argument resurfaced in 2008–09 treatment for these trade receivables. A payer will creditor rank if its after the financial crisis, particularly when looking argue that they will pay their trade receivables loan or receivable is at the bank restructurings in Kazakhstan.1 in an ongoing business because they want to Definitions were crafted for trade debt and its guarantee the source of supply.
    [Show full text]
  • Structuring and Restructuring Sovereign Debt: the Role of a Bankruptcy Regime∗
    Structuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime∗ Patrick Bolton Columbia University∗∗ Olivier Jeanne IMF§ This version, November 2007 ∗This paper has benefited from the comments of Anil Kashyap (the editor) and three anonymous referees. The views expressed in this paper are those of the author and should not be attributed to the International Monetary Fund, its Executive Board, or its man- agement. Also affiliated with the National Bureau of Economic Research (Cambridge), the Center∗∗ for Economic Policy Research (London) and the European Corporate Governance Institute (Brussels). Contact address: Columbia Business School, 3022 Broadway, Uris Hall 804, New York, NY 10027; phone: (212) 854 9245; fax:(212) 662 8474 ; email: [email protected]. § Also affiliated with the Center for Economic Policy Research (London). Contact address: IMF, 700 19th street NW, Washington DC 20431; phone: (202) 623 4272; email: [email protected]. 1 abstract In an environment characterized by weak contractual enforcement, sov- ereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure ex post. We show however, that competition for repayment between lenders may result in a sovereign debt that is excessively difficult to restructure in equilibrium. This inefficiency may be alleviated by a suitably designed bankruptcy regime that facilitates debt restructuring. 2 1 Introduction The composition of sovereign debt and how it affects debt restructuring ne- gotiations in the event of financial distress has become a central policy issue in recent years. There are two major reasons why the spotlight has been turned on this question. First, the change in the IMF’s policy orientation towards sovereign debt crises, with a proposed greater weight on ‘private sector involvement’ (Rey Report, G-10, 1996), has brought up the question of how easy it actually is to get ‘the private sector involved’; that is, how easy it is to get private debt-holders to agree to a debt restructuring.
    [Show full text]
  • The Subprime Mortgage Crisis: Underwriting Standards, Loan Modifications and Securitization∗
    The Subprime Mortgage Crisis: Underwriting Standards, Loan Modifications and Securitization∗ Laurence Wilse-Samsony February 2010 Abstract This is a survey of some literature on things that have been going on in housing mainly. Because it’s interesting. I highlight some aspects of the bubble, then some causes of the crash. I add some notes on the mortgage finance industry, and a little bit about the role of securitization in the crisis, and in posing hurdles for resolving the crisis. Those familiar with this area will be familiar with what I write about. Those not might find better surveys elsewhere. So you’ve been warned. Keywords: housing; securitization; subprime. ∗Notes on institutional detail written for personal edification. Thanks to Patrick Bolton for helpful and kind comments. [email protected] 2 1. Introduction This paper is a survey of some of the literature on the subprime mortgage crisis. I focus on two aspects of the debate around securitization. First, I consider securitization as a possible mechanism for a decline in underwriting standards. Second, I review some evidence about its role in inhibiting the restructuring of loans through modification. These aspects are related, since creating a more rigid debt structure can facilitate bet- ter risk management and permit the greater extension of credit. However, it can also result in inefficiencies, through externalities on non-contracting parties. This might justify intervention ex post (Bolton and Rosenthal, 2002 [7]). I then consider some of the recent government modification programs and their problems. A concluding sec- tion tentatively suggests topics for research. We begin by outlining the shape of the non-prime mortgage market by way of back- ground, tracing its rapid expansion from the mid-1990s, but in particular its rapid de- velopment since the turn of the century.
    [Show full text]
  • Out-Of-Court Debt Restructuring Public Disclosure Authorized
    Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized A WORLDBANKSTUDY Debt Restructuring Debt Restructuring Out-of-Court A WORLDBANKSTUDY WORLD BANK STUDY Out-of-Court Debt Restructuring Jose M. Garrido © 2012 International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org 1 2 3 4 14 13 12 11 World Bank Studies are published to communicate the results of the Bank’s work to the development community with the least possible delay. The manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally-edited texts. This volume is a product of the staff of The World Bank with external contributions. The fi ndings, interpretations, and conclusions expressed in this volume do not necessarily refl ect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judg- ment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemina- tion of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full a ribution to the work is given.
    [Show full text]
  • Troubled Debt Restructurings
    Journal of Financial Economics 27 (1990) 315-353. North-Holland Troubled debt restructurings An empirical study of private reorganization of firms in default* Stuart C. Gilson The Unicersity of Texas at Austin, Austin, TX 78712, USA Kose John and Larry H.P. Lang New York University, New York, NY 10003, USA Received November 1989, final version received May 1990 This study investigates the incentives of financially distressed firms to restructure their debt privately rather than through formal bankruptcy. In a sample of 169 financially distressed companies, about half successfully restructure their debt outside of Chapter 11. Firms more likely fo restructure their debt privately have more intangible assets, owe more of their debt to banks, and owe fewer lenders. Analysis of stock returns suggests that the market is also able to discriminate er ante between the two sets of firms, and that stockholders are systematically better off when debt is restructured privately. 1. Introduction With, the proliferation of leveraged buyouts (LBOs) and other highly leveraged transactions, there has been growing popular concern that the corporate sector is being burdened with too much debt. Much of this concern *We would like to thank Edward Altman. Yakov Amihud, Sugato Bhattacharya, Keith Brown, Robert Bruner, T. Ronald Casper, Charles D’Ambrosio, Larry Dann, Oliver Hart, Gailen Hite, Max Holmes, Scott Lee, Gershon Mandelker. Scott Mason, Robert Merton, Wayne Mikkelson, Megan Partch, Ramesh Rao, Roy Smith, Chester Spatt, Gopala Vasudevan, and Richard West for their helpful comments. We are especially grateful to Michael Jensen (the editor) and Karen Wruck (the referee) for their many detailed and thoughtful suggestions.
    [Show full text]
  • Successful Debt Restructuring by Richard C
    THE M&A TAX REPORT Successful Debt Restructuring By Richard C. Morris • Wood & Porter • San Francisco On July 28, 2006, the IRS issued LTR 200630002 benefitting any of the holders of any series of in which it ruled that the conversion of a parent the Debt. Yet, there were no provisions in the company into a limited liability company terms of the Debt restricting Parent’s ability to would not result in a deemed exchange of the acquire and dispose of assets in the ordinary company’s debt pursuant to Code Sec. 1001 course of its business. and the regulations thereunder. In particular, the IRS ruled that the internal restructuring Internal Reshuffling did not produce a significant modification of Parent proposed to restructure as follows. the debt. Given the inversion-like nature of First, Parent would form a wholly owned the exchange, and the potentially significant holding corporation (“New Parent”). New reduction in exposure to creditors, this ruling Parent would then form a wholly owned may open a new avenue of planning. subsidiary. This new third-tier subsidiary would merge with and into Parent, with Parent Layers of Debt surviving as the wholly owned subsidiary of Parent was a publicly traded corporation, New Parent. Parent would then convert into the common parent of an affiliated group a single-member limited liability company of corporations filing a consolidated return. (“SMLLC”). The restructuring is intended to Parent and its subsidiaries engaged in qualify as an F reorganization, and it looks a several businesses both domestically and lot like an inversion. internationally. Parent had outstanding After the restructuring, New Parent would publicly traded debt consisting of seven hold all of the membership interests in SMLLC, series of senior notes and five series of a limited liability company that would be exchangeable debentures (collectively disregarded as separate from its owner.
    [Show full text]
  • A Battle in the Making: Second-Lien Vs. High-Yield Debt Law360, New York (June 26, 2015, 10:04 AM ET)
    Portfolio Media. Inc. | 860 Broadway, 6th Floor | New York, NY 10003 | www.law360.com Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | [email protected] A Battle In The Making: Second-Lien Vs. High-Yield Debt Law360, New York (June 26, 2015, 10:04 AM ET) -- In the oil and gas industry, there is a storm brewing between holders of second-lien debt and unsecured high-yield bonds. These creditor groups are finding themselves pitted against one another as oil and gas companies become increasingly leveraged in an effort to alleviate liquidity constraints. As widely publicized, oil prices precipitously decreased in 2014 and depressed prices have continued into 2015, with prices falling from $103 per barrel a year ago to around $60 per barrel today. With this prolonged decline and period of weak oil prices, oil and gas companies are having difficulty breaking even. Therefore, it is not surprising that many industry players, particularly the upstream division (comprised of exploration and production activities), have experienced tightened liquidity. Larger and well-diversified companies are best equipped to weather Raniero D’Aversa the storm because they are able to rationalize liquidity by suspending new projects and future exploration, selling noncore/nonproducing assets and demanding price reductions from service providers. While these measures have helped ease some financial stress, they are often not enough and companies have turned to the debt capital markets as a source of liquidity. These new financings provide companies with much needed time to either wait out this period of depressed oil prices or formulate a restructuring plan.
    [Show full text]
  • Sovereign Debt Restructuring Good Faith Or Self-Interest?
    CIGI Papers No. 150 — November 2017 Sovereign Debt Restructuring Good Faith or Self-Interest? James A. Haley CIGI Papers No. 150 — November 2017 Sovereign Debt Restructuring: Good Faith or Self-Interest? James A. Haley CIGI Masthead Executive President Rohinton P. Medhora Director of Finance Shelley Boettger Director of the International Law Research Program Oonagh Fitzgerald Director of the Global Security & Politics Program Fen Osler Hampson Director of Human Resources Susan Hirst Interim Director of the Global Economy Program Paul Jenkins Chief Operating Officer and General Counsel Aaron Shull Director of Communications and Digital Media Spencer Tripp Publications Publisher Carol Bonnett Senior Publications Editor Jennifer Goyder Publications Editor Susan Bubak Publications Editor Patricia Holmes Publications Editor Nicole Langlois Publications Editor Lynn Schellenberg Graphic Designer Melodie Wakefield For publications enquiries, please contact [email protected]. Communications For media enquiries, please contact [email protected]. Copyright © 2017 by the Centre for International Governance Innovation The opinions expressed in this publication are those of the author and do not necessarily reflect the views of the Centre for International Governance Innovation or its Board of Directors. This work is licensed under a Creative Commons Attribution — Non-commercial — No Derivatives License. To view this license, visit (www.creativecommons.org/licenses/by-nc-nd/3.0/). For re-use or distribution, please include this
    [Show full text]