Mitigating the Corporate Valuation Problem in Chapter 11 Reorganizations: Transferable Put Rights and Contingent Value Rights
Posted: 3 Jul 1998
Date Written: December 1995
Bebchuk (1988) advances a new methodology for allocating financial claims against a reorganized company that does not require inter- (or intra-) group bargaining, nor is it necessary to explicitly identify (or agree on) the value of the reorganized company. Despite its apparent attractiveness for the quick and efficient reallocation of reorganized firm value, some have suggested that the method may be too complicated for practical purposes. Thus, there is a gap between the theoretical appeal of the Bebchuk proposal and the practical realities of employing the technique in an actual bankruptcy reorganization. We show how that gap can be bridged (at least partially) with two recent financial innovations. We also describe the actual use of the financial innovations in two recent corporate bankruptcy reorganizations.
JEL Classification: G33, G34
Suggested Citation: Suggested Citation