Creditor Coalitions in Bankruptcy

89 Pages Posted: 6 Jun 2024 Last revised: 7 Dec 2024

See all articles by Jing-Zhi Huang

Jing-Zhi Huang

Pennsylvania State University - University Park - Department of Finance

Stefan Lewellen

Pennsylvania State University - Department of Finance

Zhe Wang

Pennsylvania State University - Department of Finance

Date Written: July 24, 2024

Abstract

We provide a first look at the economics of creditor coalitions in U.S. Chapter 11 bankruptcies using novel coalition membership and holdings data.  We find that coalition formation propensities are driven by variables such as debt size, creditor dispersion, creditor type, market liquidity, and creditor familiarity.  Bond prices increase following coalition announcements, suggesting that markets associate coalitions with improved recovery.  Using a landmark 2017 court ruling, we show that weakened creditor protections are associated with increased coalition formation and class recovery, but also more litigious and lengthier bankruptcy proceedings.  Our results shed light on key factors affecting creditor coordination behavior.

Keywords: Distressed debt, ad-hoc creditor groups, Chapter 11, hedge funds, Peabody ruling, creditor-on-creditor violence G33, bond recoveries

JEL Classification: G33, G34, G11, G32, D71, K22

Suggested Citation

Huang, Jing-Zhi Jay and Lewellen, Stefan and Wang, Zhe, Creditor Coalitions in Bankruptcy (July 24, 2024). Available at SSRN: https://ssrn.com/abstract=4854111 or http://dx.doi.org/10.2139/ssrn.4854111

Jing-Zhi Jay Huang

Pennsylvania State University - University Park - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://www.personal.psu.edu/jxh56

Stefan Lewellen (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

Zhe Wang

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

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