– The true costs of bankruptcy or financial distress are:
- 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.
- 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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