This paper investigates the choice between bankruptcy and informal (out-of-court) renegotiations for a sample of small and medium-sized French firms in default. First, we find that the likelihood of informal renegotiations increases with loan size and the proportion of long-term debt. Second, the probability of a successful renegotiation decreases when (i) the bank in charge of handling the process is the debtor’s ‘‘main’’ creditor and when (ii) the firm is badly rated and its management is considered faulty. Third, collateral plays a significant role in the first stage of the renegotiation process. However, it does not impact the likelihood of success in reaching a renegotiated agreement. Finally, some banks are clearly better than others at leading successful renegotiation processes. Link to the article
BLAZY, R., MARTEL, J. and NIGAM, N. (2014). The Choice Between Informal and Formal Restructuring: The Case of French Banks Facing Distressed SMEs. Journal of Banking and Finance, 44, pp. 248-263.