At first glance, distressed exchanges can be appealing to lenders who typically recover a greater proportion of their outlay than they would in a bankruptcy, according to Julia Chursin, senior analyst at Moody’s.

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But the current repeat rate for defaults means that often, “you get hit once, then a second time — your recovery rate deteriorates”, Chursin said. Historical data for unsecured bonds indicates that if a company goes through a distressed exchange, then files for bankruptcy, “[creditors’] losses can accumulate and it can be worse than just filing for bankruptcy”.

US companies in distress turn to debt exchanges to dodge bankruptcy | Financial Times