Corporate Financial Distress, Restructuring, and Bankruptcy

EDWARD I. ALTMAN is the Max L. Heine Professor of Finance, Emeritus at New York University, Stern School of Business and Director of the Credit and Fixed Income Research Program at the NYU Salomon Center. EDITH HOTCHKISS is a Professor of Finance at the Carroll School of Management at Boston College. WEI WANG is an Associate Professor and RBC Fellow of Finance, and Director of Master of Finance – Beijing program at the Smith School of Business at Queen’s University, Canada.

About the Authors ix

Acknowledgments xi

Preface xiii

Part One The Economic and Legal Framework of Corporate Restructuring and Bankruptcy

Chapter 1 Corporate Financial Distress: Introduction and Statistical Background 3

Chapter 2 An Introduction to Leveraged Finance 21

Chapter 3 An Overview of the U.S. Bankruptcy Process 39

Chapter 4 Restructuring Out-of-Court and the Cost of Financial Distress 71

Chapter 5 Valuation of Distressed Firms 91

Chapter 6 Corporate Governance in Distressed Firms 117

Chapter 7 Bankruptcy Outcomes 135

Chapter 8 International Evidence 147

Part Two High-Yield Debt, Prediction of Corporate Distress, and Distress Investing

Chapter 9 The High-Yield Bond Market: Risks and Returns for Investors and Analysts 165

Chapter 10 A 50-Year Retrospective on Credit Risk Models, the Altman Z-Score Family of Models, and Their Applications to Financial Markets and Managerial Strategies 189

Chapter 11 Applications of Distress Prediction Models: By External Analysts 217

Chapter 12 Distress Prediction Models: Catalysts for Constructive Change-Managing a Financial Turnaround 235

Chapter 13 A Bottom-Up Approach to Assessing Sovereign Default Risk 245

Chapter 14 The Anatomy of Distressed Debt Markets 265

Chapter 15 Investing in Distressed Firm Securities 277

Chapter 16 Modeling and Estimating Recovery Rates 295

References 315

Author Index 335

Subject Index 343