ABOUT THIS EPISODE
An amend-and-extend moves the maturity and leaves the leverage where it was. A debt-for-equity swap cuts the debt and dilutes the equity. The first is routine and the second is rare, and the constraint is not legal - most of the holder base cannot take the equity or does not want it.
Josef Pschorn speaks with Mike Harmon of Stanford Graduate School of Business about why out-of-court restructurings extend maturities without reducing debt, and what has to be true before a company actually deleverages.
- Once a company is worth less than its debt, the equity is an out-of-the-money call option, so shareholders buy time and volatility rather than repair the balance sheet
- Without maintenance covenants, creditors cannot force a reduction in debt
- Most of the holder base does not want equity: CLOs have equity buckets, mutual funds have mandates, and only distressed funds want the position
- Creditors are not one actor - a lender hedged with CDS or a par lender who has not marked down has a different payoff from a discount buyer
- Private credit changed the composition of the holder base rather than the law, which is where debt-for-equity swaps are actually getting done
- The US has liability management at one end and Chapter 11 at the other with nothing in between, while the UK, Japan, France and China all run a lighter court-supervised path
Mike Harmon: Stanford Graduate School of Business. https://www.linkedin.com/in/mike-harmon-92b130184
The Financial Restructuring Tool Set (Columbia University Press): https://cup.columbia.edu/book/the-financial-restructuring-tool-set/9780231216982/
Liability Management’s Limited Runway: Corporate Restructuring Today, Mark J. Roe, Vasile Rotaru - Oxford Business Law Blog
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Fixed + Floating is for informational purposes only. Not investment, legal, or tax advice.
Recorded: 24.08.2026
#fixedfloating #creditanalysis #liabilitymanagement #distresseddebt #restructuring #privatecredit
