Creditor Control through Loan-to-Loan and Loan-to-Own*

This paper provides new evidence on the different roles and strategies adopted by creditors of distressed firms. Loan-to-loan occurs when secured bank lenders continue to provide debtor-in-possession financing after a borrower files for Chapter 11, while loan-to-own occurs when unsecured creditors become equity holders at emergence and/or activist investors provide debtor-in-possession financing. We find that loan-to-loan creditors gain power against junior claimants but do not affect CEO or board turnover, while loan-to-own creditors actively improve corporate governance and operating performance of emerged firms. We show the importance o