Why would a distressed company prefer out-of-court restructuring over Chapter 11?

Answer

Pros of out-of-court: (1) Far lower legal/advisor fees (Chapter 11 can cost $10M+ in fees); (2) Speed — out-of-court can wrap in weeks; bankruptcy can drag 12-24 months; (3) Reputational damage — bankruptcy filing is public and stigmatizing; (4) Flexibility — can negotiate creative solutions without court approval; (5) Preserves management control. Cons / when court is needed: (1) Complex cap structures with many tranches and holdouts; (2) Need automatic stay against litigation/creditors; (3) Need court-supervised asset sales (363 sales); (4) Need to bind dissenting creditors via cram-down.