Campello, M., Ladika, T. and Matta, R. (2019). Renegotiation Frictions and Financial Distress Resolution: Evidence from CDS Spreads Review of Finance, 23(3):513--556.

We study how renegotiation frictions impact distressed debt resolution and ex-ante financial contracting. We do so by exploiting an event that exogenously reduced the costs that syndicated lenders incur when renegotiating debt out of court, without affecting in-court restructuring costs (IRS Regulation TD9599). CDS contracts insure creditors against in-court bankruptcy losses and CDS spreads reflect the shadow price of bankruptcy risk. Using a triple-differences approach, we show that CDS spreads fell by record figures on the event{\textquoteright}s announcement, with declines concentrated among distressed firms that relied most on syndicated loans. Distressed firms{\textquoteright} loan renegotiation rates more than doubled, as banks agreed to extend loan maturities in exchange for higher interest payments. Those firms{\textquoteright} access to new syndicated loans increased while associated interest markups declined.