Strategic debt restructuring

We analyze a distressed firm indebted to many creditors. The firm's owners have the option of choosing the sequence of restructuring negotiations with the creditors. We show that sequencing flexibility is beneficial to firm o wners, and that the optimal sequencing of restructuring negotiations involv es exploiting the firm's liabilities to some creditors so as to moderate th e demands of others. Moderately distressed firms will eschew renegotiations with creditors in strong bargaining positions. Severely distressed firms w ill extract concessions from all creditors. In this case, owners can gain i f they can credibly commit to conditional restructuring agreements that lin k the concessions of one creditor to concessions by others.