Coercive Tender and Exchange Offers in Distressed High- Yield Debt Restructurings : An Empirical Analysis

This study empirically examines tender and exchange offers for a recent sample of 46 high-yield debt restructurings by financially distressed firms during 1989-1992. We find significant differences between tender and exchange offers. Firms using tender offers appear to be in less financial distress than firms using exchange offers and face a more severe holdout problem as revealed by the structure of targeted debt. We find a significant level of coercion in our sample where tender offers appear to be more coercive than exchange offers. An analysis of success rates and post-offer filings of Chapter 11 indicates that coercion is effective in alleviating the holdout problem. Tender offers also experience a positive stock and bond price response to announcements. Our analysis suggests that coercion is not detrimental to bondholders, and may benefit security holders by increasing the likelihood of a less costly, out-of-court restructuring. Finally, we find that the LTV decision did not render exchange offers ineffective in restructuring debt of financially distressed firms. Solicitation of exit consents in exchange offers has increased significantly after the LTV decision