In May 1991, one month after seizing Executive Life, California regulators seized First Capital Life (FCLIC). Both insurers were Drexel clients with large junk bond holdings, and both had experienced ‘bank runs’. FCLIC's run followed regulators' televised comments that its poor condition necessitated a substantial cash infusion. Yet FCLIC's statutory capital — with junk bonds, real estate, and mortgages marked to market — was far from lowest among major insurers with California policyholders. It becomes lowest if junk bonds alone are marked to market at year-end 1990 (ignoring larger market declines in real estate/mortgages and the junk bond market's 21% return in early 1991). Our findings suggest a regulatory bias against junk bonds in the political backlash against the 1980s.

We provide comprehensive data on the attributes and outcomes of the restructuring process for a sample of 49 financially distressed firms that restructured by means a prepackaged bankruptcy. Our findings complement previous research on out-of-court restructurings and traditional Chapter 11 filings. By most measures, including the time spent in reorganization, the direct fees as a percent of pre-distress assets, the recovery rates by creditors, and the incidence of violation of absolute priority of claimholders, we find that prepacks lie between out-of-court restructurings and traditional Chapter 11 bankruptcies.