–          The true costs of bankruptcy or financial distress are:

  1. The costs involved in pursuing the legal process of realigning the claims on the assets of the company from those specified in the original borrowing contract.
  2. The implicit and opportunity costs incurred in this effort relative to what would have happened had the company financed instead by equity capital.

–          Unless there is some unique benefit to the issuance of a particular type of claim, there is no reason to think that one type of claim will be better than another.


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