The Changing Face of Chapter 11 Bankruptcy: Insights from Recent Trends and Research

Abstract

Several recent trends have reshaped the nature of bargaining in Chapter 11. These include: increasingly complex pre-bankruptcy capital structures; decreasing time in Chapter 11 due to prepacks and pre-negotiated plans; growing use of restructuring support agreements (RSAs) and sales of substantially all assets; an increased number of defaulting private equity owned firms; and an increase in activity of specialized distress debt investors. These trends have changed the balance of power in favor of senior secured lenders, who further shape the course of out-of-court negotiations. We examine evidence of the impact of these changes on important stakeholders including creditors and workers.

Keywords: Bankruptcy, Chapter 11, Defaults, Distressed Debt, Recovery Rate, 363 Sales, Private Equity, Creditor Rights, Leveraged Loans

JEL Classification: G32, G33, G34