Chapter | High Yield Bonds: Market Structure, Valuation, and Portfolio Strategies | 1999

Managing Default: Some Evidence on How Firms Choose between Workouts and Chapter 11

Keywords: Insolvency and Bankruptcy; Decision Choices and Conditions; Business or Company Management;

Format: Print

Citation:

Gilson, S. C. "Managing Default: Some Evidence on How Firms Choose between Workouts and Chapter 11." In High Yield Bonds: Market Structure, Valuation, and Portfolio Strategies, edited by T. M. Barnhill, W. F. Maxwell, and M. R. Shenkman. New York: McGraw-Hill, 1999.

A manufacturer of buildng prducts and specialty chemicals, W. R. Grace & Co. filed for Chapter 11 bankruptcy in 2001 in response to a flood of lawsuits alleging that its products contained asbestos, and had caused hundreds of thousands of people to contract asbestos-related diseases such as mesothelioma and lung cancer. Nine years later, Grace is poised to emerge from bankruptcy with a plan of reorganization that provides for the establishment of two special purpose trusts through which all current and future asbestos claims will be channeled, allowing the company to survive as an ongoing business. However, the company and asbestos claimholders' committees materially disagree over the size of the company's liability for asbestos, and have hired experts to value the liability. Grace's expert argues the liability is worth between $83 million and $173 million, while the plaintiff's expert argues the liability could be as high as $6.2 billion.

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Managing Default: Some Evidence on How Firms Choose between Workouts and Chapter 11

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