The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions

CHAPTER 20

The Impact of Restructuring on Bondholders*

LUC RENNEBOOG

Professor of Corporate Finance, Tilburg University and ECGI

PETER G. SZILAGYI

Lecturer in Finance, Judge Business School, University of Cambridge

INTRODUCTION

During the past two decades, a surge in corporate restructuring has occurred around the world, driven by technological shocks, market deregulation, and global competition for capital supply. Restructuring activity has been particularly pronounced in the United States, where consecutive merger waves have shown that sheer size is no longer a deterrent to takeover threat. As a result and also motivated by other sources of managerial discipline, restructuring activity has largely focused on increasing corporate efficiency through corporate refocusing and financial restructuring. In Europe, where market-based disciplinary mechanisms have historically been weaker, corporate restructuring has accelerated in response to the ongoing economic and financial integration in the European Union. In Japan, though, the restructuring process has been painful, as most firms have undergone some form of reorganization in response to the asset bubble burst of the 1980s and the following economic stagnation.

This chapter provides a comprehensive overview of the literature on the impact of corporate restructuring on bondholder wealth. Fixed creditor claims are affected not only by the firm's postrestructuring performance, but also by unexpected changes in its capital structure ...