We examine whether debtholder-focused investor communication activities (Debt IC), primarily conducted through in-person fixed income conferences, affect public debt out-of-court restructuring (OCR) outcomes. OCR is challenging, as it generally requires near-unanimous consent from dispersed bondholders. Using a sample of financially distressed U.S. firms from 2006 to 2021, we find that Debt IC is positively associated with the likelihood of OCR over costly Chapter 11 bankruptcy, while generic and historical financial reporting information or untargeted investor outreach show no such effect. Our findings support two non-mutually exclusive channels through which Debt IC enhances OCR likelihood: (i) by reducing information frictions when future firm and macro-level uncertainty is high, and (ii) by mitigating coordination frictions among dispersed debtholders. Additionally, we find that firms increase Debt IC as distress increases, with its effectiveness on OCR success concentrated among distressed firms. Overall, our findings underscore the importance of Debt IC for financially distressed firms in increasing the likelihood and effectiveness of public debt OCR. We contribute to policy debates on efficient restructuring mechanisms that mitigate socioeconomic disruptions from business failures. Furthermore, the context of our study allows us to more generally shed light on the efficacy of targeted stakeholder communication during crisis periods.

wlareina@ceibs.edu