3 Aspects Of Value Preservation For Restructuring Cos.
Law360, January 29, 2019
With large-scale bankruptcies such as Sears continuing to make headlines, following a string of closures of branded retailers in 2018, three Analysis Group consultants reported on academic research on different mechanisms for protecting and preserving value for distressed companies. In their Expert Analysis titled “3 Aspects Of Value Preservation For Restructuring Cos.,” published in the Bankruptcy section of Law360.com, Managing Principal Gaurav Jetley and Vice Presidents Edi Grgeta and Ran Wei summarized three research papers presented during the “Financial Distress and Resolution” session at the American Economic Association’s (AEA’s) annual conference in January 2019.
The first paper, “Payday before Mayday: CEO Compensation Contracting for Distressed Firms,” discusses how CEO compensation is being redesigned in order to enhance retention and preserve incentives in light of declining operational performance and stock price.
The second paper, “Debt-Equity Simultaneous Holdings and Distress Resolution,” offers evidence that a distressed company is more likely to reorganize in a cost-effective out-of-court restructuring if its creditors simultaneously hold both debt and equity stakes in the company.
The final paper, “Learning by Doing: Judge Experience and Bankruptcy Outcomes,” examines the impact of judicial experience on selected outcomes from bankruptcy proceedings, such as time spent in bankruptcy, probability of reorganization rather than liquidation, and debt recovery rates.
In the Analysis Group article, Professor Kose John from New York University, who chaired the AEA session, commented, “Academic research such as [these papers] is increasingly relevant for policy makers, executives, investors, attorneys, judges, and consultants in the bankruptcy space.”