ANATOMY OF FINANCIAL DISTRESS - AN EXAMINATION OF JUNK-BOND ISSUERS

This paper analyzes the ways in which financially distressed firms try to avoid bankruptcy through public and private debt restructurings, a sset sales, mergers, and capital expenditure reductions. Our main find ing is that a firm's debt structure affects the way financially distre ssed firms restructure. The combination of secured private debt and nu merous public debt issues seems to impede out-of-court restructurings and increases the probability of a Chapter 11 filing. In addition, we find that, while asset sales are a way of avoiding Chapter 11, they ar e limited by industry factors: firms in distressed and highly leverage d industries are less prone to sell assets.