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Reputation and the Market for Distressed Firm Debt

Published online by Cambridge University Press:  06 April 2009

Thomas H. Noe  and
Michael J. Rebello
Thomas H. Noe
Affiliation:
[email protected], A. B. Freeman School of Business, Tulane University, New Orleans, LA 70118;
Michael J. Rebello
Affiliation:
[email protected], Department of Finance, CBA, Georgia State University, Atlanta, GA 30303.
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Abstract

Our analysis explains how vulture investors (vultures) can maintain and exploit their reputations for toughness. Vultures leverage their reputations to extract concessions from stockholders in debt restructurings. To profit from these concessions, vultures must first acquire debt from incumbent bondholders. Buying only the tranches most likely to render them marginal creditors maximizes vulture leverage in debt-purchase negotiations. Vulture profits are proportional to the degree of uncertainty regarding the identity of the marginal debt class.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 38 , Issue 3 , September 2003 , pp. 503 - 521
Copyright
Copyright © School of Business Administration, University of Washington 2003

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