Bank Responses to Corporate Reorganization: Evidence from an Emerging Economy

Oreng, Mariana; Saito, Richard; Silva, Vinicius A. B.

doi:10.1590/1807-7692bar2019180053

Mariana Oreng

Fundação Getulio Vargas, São Paulo, SP, Brazil

Mariana Oreng Fundação Getulio Vargas, Escola de Administração de Empresas de São Paulo. Avenida Nove de Julho, 2029, 01313-902, São Paulo, SP, Brazil. mariana.oreng@gmail.com http://orcid.org/0000-0002-7266-6560

https://orcid.org/0000-0002-7266-6560

Richard Saito

Fundação Getulio Vargas, São Paulo, SP, Brazil

Richard Saito Fundação Getulio Vargas, Escola de Administração de Empresas de São Paulo. Avenida Nove de Julho, 2029, 01313-902, São Paulo, SP, Brazil. rsaito@finenge.com https://orcid.org/0000-0002-9512-9071

https://orcid.org/0000-0002-9512-9071

Vinicius A. B. Silva

Fundação Escola de Comércio Álvares Penteado, São Paulo, SP, Brazil

Vinicius A. B. Silva Fundação Escola de Comércio Álvares Penteado. Av. da Liberdade, 532, 01502-001, São Paulo, SP, Brazil. vinicius.brunassi@fecap.br https://orcid.org/0000-0002-1299-321X

https://orcid.org/0000-0002-1299-321X

Rosilene Marcon was the associate editor for this article.

Editorial assistant: Luciane Kato Kiwara

Editor-in-chief: Carlo Gabriel Porto Bellini

Mariana Oreng

Fundação Getulio Vargas, Escola de Administração de Empresas de São Paulo. Avenida Nove de Julho, 2029, 01313-902, São Paulo, SP, Brazil. mariana.oreng@gmail.com

http://orcid.org/0000-0002-7266-6560

Richard Saito

Fundação Getulio Vargas, Escola de Administração de Empresas de São Paulo. Avenida Nove de Julho, 2029, 01313-902, São Paulo, SP, Brazil. rsaito@finenge.com

https://orcid.org/0000-0002-9512-9071

Vinicius A. B. Silva

Fundação Escola de Comércio Álvares Penteado. Av. da Liberdade, 532, 01502-001, São Paulo, SP, Brazil. vinicius.brunassi@fecap.br

https://orcid.org/0000-0002-1299-321X

Contributions

1^st author: discussion of the concept and design of this study; responsible for hand-collecting the information on these filings; responsible for the writing of the manuscript; responsible for implementing the changes resulting from discussions, as well as for the empirical analysis.

2^nd author: discussion of the concept and design of this study; responsible for the writing of the manuscript.

3^rd author: discussion of the concept and design of this study; responsible for gathering the initial documents for analysis.

As per the discussion and final approval of the paper, we had a total of 8 rounds in which all three authors participated.

Code	Bank intervention
0	No Intervention / Bank did not hand in required documents on time / Bank arrived late to the Committee / Bank was absent
1	Bank did not agree with listed credit or credit classification or presented a Challenge procedure. In Portuguese, this is called Impugnação de crédito
2	Bank requested a longer period for analysis or requested Meeting suspension
3	Bank requested conditions other than those presented by the company or presented an Alternative plan
4	Bank assigned receivables to a Receivables investment fund
5	Bank requested that guarantees not be suspended or that it will maintain execution against guarantors or co-obligors, as a creditor is defined as a person or entity who promises to pay back a loan if the original borrower does not pay it back, and a co-obligor is defined as one who is bound together with one or more others to fulfill an obligation
6	Unsecured Bank did not agree with conditions proposed to Secured banks or vice-versa
7	Bank did not agree with Reorganization request or stated that proposed Plan lacks legal certainty
8	Bank stated that it has Priority credit. In Portuguese, this is called Crédito extraconcursal
9	Bank did not agree with conditions proposed to Banks in the same group
10	Bank was against sale of fixed assets

In BRL millions	Total debt	Senior debt	Junior debt	Labor debt	Asset valuation	Haircut (senior debt)	Haircut (junior debt)	Age
n. obs	114	74	110	114	58	39	78	109
Average	127.9	13.9	98.056	1.9	319.8	42%	45%	32
St. dev	336.6	37	281.9	4.9	1,068	23%	23%	23
Max	2,325	204.5	2,012	51.6	4,426	90%	85%	113
Min	0.4	0	0	0	0,1	0%	0%	1

	Vote	haircut_senior_junior	qtybanks	ln_debt_asset	ln_age	debtbank_asset_ratio
Vote	1
haircut_senior_junior	0.0057	1
haircut_senior_junior	0.9307
qtybanks	-0.013	0.0451	1
qtybanks	0.7116	0.5063
ln_debt_asset	-0.1354	0.2509	-0.2433	1
ln_debt_asset	0.0087	0.0074	0
ln_age	0.0768	-0.2872	0.0858	-0.2786	1
ln_age	0.0412	0.0002	0.0236	0
debtbank_asset_ratio	0.0281	-0.0104	0.0135	-0.2028	-0.0618	1
debtbank_asset_ratio	0.5874	0.9225	0.7943	0.0042	0.2582

	Vote	haircut_senior_junior	ln_qtybanks	ln_debt_asset	ln_age	debtbank_asset_ratio
Vote	0.4381
haircut_senior_junior	0.0356	0.3143
ln_qtybanks	0.1568	0.1271	0.8339
ln_debt_asset	-0.0095	0.1749	0.3077	0.932
ln_age	0.0749	-0.0687	0.1032	-0.2709	0.8976
debtbank_asset_ratio	0.0119	0.0785	-0.1571	-0.2107	0.0751	1

In BRL millions	Bank debt	Bank senior debt (per bank)	Bank junior debt (per bank)	# Banks
n. obs	124	113	123	125
Average	71.4	7.9	19.9	9
st. dev	251.2	20.6	311.3	5
Max	2,262	130.8	8,291	24
Min	0	0	0	1

Event	Frequency
Capital subscription, raising capital or spin-off	13%
Debt conversion	6%
Debt issue	5%
Share buyback	1%
Productive unit sale	23%
Creditor as a special partner^* * By Special partner, we mean creditors who agree to better conditions for debt payment and/or offer new lines of credit.	19%

	Conflict	No conflict
	Approved	Rejected	Approved	Rejected
Senior bank debt/residual book value	0.27	1.10	1.19	0.58
Junior bank debt/residual book value	0.51	2.33	10.87	4.09

Variables	Average - conflict	Average - No conflict	T test	Conclusion
Number of bank creditors	8.00	6.63	0.35	Confirmed
Total debt	R$82.09	R$90.03	0.00	Confirmed
Labor debt/total debt	3.51%	2.77%	4.76	Rejected
Senior bank debt/total debt	15.08%	8.78%	7.90	Rejected
Junior bank debt/total debt	31.65%	35.64%	-1.02	Confirmed
Haircut - senior debt	24.75%	10.90%	10.40	Rejected
Haircut - junior debt	32.42%	26.52%	4.71	Rejected
Amortization - senior debt³ 3 In months.	91 months	44 months	0.11	Confirmed
Amortization - junior debt³ 3 In months.	92 months	99 months	-0.01	Confirmed
Waiting Period - senior debt³ 3 In months.	21 months	7 months	0.45	Confirmed
Waiting Period - junior debt³ 3 In months.	20 months	14 months	0.16	Confirmed
Debt conversion¹ 1 As a proportion of the total number of reorganization cases.	0.00%	7.77%	-5.26	Rejected
Share repurchase¹ 1 As a proportion of the total number of reorganization cases.	0.00%	1.00%	-4.90	Rejected
New debt issue¹ 1 As a proportion of the total number of reorganization cases.	0.00%	5.83%	-5.15	Rejected
Productive unit sale¹ 1 As a proportion of the total number of reorganization cases.	15.00%	23.30%	-1.99	Rejected
Corporate restructuring¹ 1 As a proportion of the total number of reorganization cases.	20.00%	11.65%	3.05	Rejected
Partner lenders,² 2 Partner Lenders are those willing to offer new lines of credit to the company in case the reorganization is granted.	25.00%	17.48%	2.03	Rejected

Variables	Z test	Prob \|z\| > Z
Number of bank creditors	-2.12	0.03
Total debt	-0.23	0.81
Labor debt/total debt	-0.82	0.41
Senior bank debt/total debt	0.59	0.55
Junior bank debt/total debt	0.62	0.52
Haircut - senior debt	-0.45	0.64
Haircut - junior debt	-1.21	0.22
Amortization - senior debt³ 3 In months.	1.24	0.21
Amortization - junior debt³ 3 In months.	1.48	0.13
Waiting period - senior debt³ 3 In months.	-0.78	0.43
Waiting period - junior debt³ 3 In months.	-1.42	0.15
Debt conversion¹ 1 As a proportion of the total number of reorganization cases.	1.28	0.19
Share repurchase¹ 1 As a proportion of the total number of reorganization cases.	0.44	0.65
New debt issue¹ 1 As a proportion of the total number of reorganization cases.	1.10	0.27
Productive unit sale¹ 1 As a proportion of the total number of reorganization cases.	0.81	0.41
Corporate restructuring¹ 1 As a proportion of the total number of reorganization cases.	-1.01	0.31
Partner lenders,² 2 Partner Lenders are those willing to offer new lines of credit to the company in case the reorganization is granted.	-0.78	0.43

	(1)	(2)	(3)	(4)	(5)	(6)
Variables	Vote	Vote	Vote	Vote	Vote	Vote
ln_qtybanks	1.916^* * p<0.1	1.129^ p<0.05,	1.112	0.603	1.941	1.186
ln_qtybanks	(0.980)	(0.531)	(1.385)	(0.712)	(1.683)	(1.044)
Qtybanks²	-0.0272^* ***** p<0.01	-0.0163^* ***** p<0.01	-0.0102	-0.00591	-0.00784	-0.00502
Qtybanks²	(0.00884)	(0.00481)	(0.0150)	(0.00824)	(0.0226)	(0.0137)
bankdebt_asset_ratio	-0.409	-0.290	-0.0131	-0.155	0.730	0.469
bankdebt_asset_ratio	(1.709)	(1.016)	(1.869)	(1.105)	(1.951)	(1.188)
ln_age	1.568^* ***** p<0.01	0.947^* ***** p<0.01	0.712	0.426	2.001^* ***** p<0.01	1.199^* ***** p<0.01
ln_age	(0.477)	(0.278)	(0.724)	(0.433)	(0.603)	(0.341)
Age²	-0.000227^ p<0.05,	-0.000135^ p<0.05,	0.000388	0.000218	-0.000405^ p<0.05,	-0.000242^ p<0.05,
Age²	(0.000107)	(6.28e-05)	(0.000341)	(0.000194)	(0.000179)	(0.000104)
large	-0.517	-0.292	-0.506	-0.284	-0.390	-0.204
large	(0.538)	(0.315)	(0.566)	(0.341)	(0.570)	(0.335)
Constant	-5.871^* ***** p<0.01	-3.503^* ***** p<0.01	12.21	2.437	-8.309^* ***** p<0.01	-5.004^* ***** p<0.01
Constant	(2.160)	(1.220)	(2.402)	(308.1)	(2.934)	(1.770)
Observations	92	92	89	89	82	82
Pseudo R-squared	0.2398	0.2420	0.2989	0.2988	0.2179	0.2177
Logit	Yes	No	Yes	No	Yes	No
Probit	No	Yes	No	Yes	No	Yes
Bank Size Controls	Yes	Yes	Yes	Yes	Yes	Yes
Year Controls	No	No	Yes	Yes	Yes	Yes
State Controls	No	No	No	No	Yes	Yes

\begin{matrix} {Vote}_{i, j} = α_{0} + α_{1} \ln ({QtyBanks}_{j}) + α_{2} {QtyBanks}_{j}^{2} + α_{3} \ln \frac{{BankDebt}_{i}}{{Asset}_{j}} \\ + α \ln ({Age}_{j}) + α_{4} {Age}_{j}^{2} + α_{5} L \arg e_{i} + u_{i, j} \end{matrix}

[1] Rosilene Marcon was the associate editor for this article.

Editorial assistant: Luciane Kato Kiwara

Editor-in-chief: Carlo Gabriel Porto Bellini

Brasil

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Bank Responses to Corporate Reorganization: Evidence from an Emerging Economy