The Ownership and Trading of Debt Claims in Chapter 11 Restructurings

47 Pages Posted: 19 Mar 2010 Last revised: 17 Jan 2017

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)

Benjamin Charles Iverson

Northwestern University - Kellogg School of Management

David C. Smith

University of Virginia - McIntire School of Commerce

Date Written: June 5, 2015

Abstract

Using a novel data set that covers individual debt claims against 136 bankrupt US companies and includes information on a subset of claims transfers, we provide new empirical insight regarding how a firm’s debt ownership relates to bankruptcy outcomes. Firms with higher debt concentration at the start of the case are more likely to file prearranged bankruptcy plans, to move quickly through the restructuring process, and to emerge successfully as independent going concerns. Moreover, higher ownership concentration within a debt class is associated with higher recovery rates to that class. Trading of claims during bankruptcy concentrates ownership further, but this trading is not associated with subsequent improvements in bankruptcy outcomes and could, at the margin, increase the likelihood of liquidation.

Keywords: Chapter 11; Ownership structure; Distressed debt; Trading in bankruptcy

JEL Classification: G23, G30, G33

Suggested Citation

Ivashina, Victoria and Iverson, Benjamin Charles and Smith, David C., The Ownership and Trading of Debt Claims in Chapter 11 Restructurings (June 5, 2015). Journal of Financial Economics (JFE), 119 (2), 316-335, 2015. Available at SSRN: https://ssrn.com/abstract=1573311 or http://dx.doi.org/10.2139/ssrn.1573311

Victoria Ivashina

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Benjamin Charles Iverson

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

David Carl Smith (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

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