I would think the debt holders would rather cut a deal than let the company go belly up. $.50 on the dollar is better than zero cents on the dollar.
[1] https://media.gm.com/media/us/en/gm/news.detail.html/content...
As you can see, 15% interest rates will do that. But this is one of those weird PE setups where the left hand is lending to the right hand.
It just seems to me that if a company is doing something profitably, that would be the company I would want to lend money to.
When getting a mortgage, one of the things the companies will look at is your income to debt ratio. For a company it's no different. Yes, there have been companies that have gone under for too much debt. There have also been plenty of companies that have done well even with debt.
When you hear people say "OPM", aka "Other People's Money", what they typically mean is taking on debt and paying it down over time.
And for the poster who stated you don't have to service equity... that's completely bullcrap. We've all heard stories of VC's shuttering a profitable company because they weren't profitable ENOUGH. There's a cost to everything, that equity isn't free.