Chrysler, a failing auto manufacturer, was reorganized in a controversial chapter 11 in 2009. Financial creditors were paid a quarter of the amount owed them, while other creditors were paid more. The reorganization’s defenders asserted, among other things, that the proceeding and the sale structure was typical of prior practice. To see if this view fits the evidence, we examine all prior large section 363 sales for key financial ratios that can show whether a priority distortion is very unlikely. For example, in a cash sale with the buyer not assuming any debt of the bankrupt, the sale itself cannot ordinarily disrupt standard priorities. The Wilcoxon signed-rank test for these ratios indicates that Chrysler significantly differed from prior practice. It used less cash and the buyer assumed more debt than has been typical. Examining restricted samples, such as prior section 363 sales of firms with high unfunded pension obligations, yields similar results. The evidence here thus does not support the claim that the Chrysler reorganization fit the preexisting pattern of section 363 sales.
{"title":"How the Chrysler Reorganization Differed from Prior Practice","authors":"M. Roe, Joo-Hee Chung","doi":"10.2139/ssrn.2103276","DOIUrl":"https://doi.org/10.2139/ssrn.2103276","url":null,"abstract":"Chrysler, a failing auto manufacturer, was reorganized in a controversial chapter 11 in 2009. Financial creditors were paid a quarter of the amount owed them, while other creditors were paid more. The reorganization’s defenders asserted, among other things, that the proceeding and the sale structure was typical of prior practice. To see if this view fits the evidence, we examine all prior large section 363 sales for key financial ratios that can show whether a priority distortion is very unlikely. For example, in a cash sale with the buyer not assuming any debt of the bankrupt, the sale itself cannot ordinarily disrupt standard priorities. The Wilcoxon signed-rank test for these ratios indicates that Chrysler significantly differed from prior practice. It used less cash and the buyer assumed more debt than has been typical. Examining restricted samples, such as prior section 363 sales of firms with high unfunded pension obligations, yields similar results. The evidence here thus does not support the claim that the Chrysler reorganization fit the preexisting pattern of section 363 sales.","PeriodicalId":112313,"journal":{"name":"CGN: Dissolutions & Bankruptcy Reorganizations (Topic)","volume":"322 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115423513","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Lehman bankruptcy highlights the potential for interconnectedness to cause negative externalities through counterparty contagion, but the externalities may also arise from information contagion. We examine contagion from troubled financial firms and find that counterparty contagion is greater during recessions and in cases of riskier firms and larger and more complex exposures. However, the counterparty exposures are small, especially among banks that face diversification regulations, and do not typically cause a cascade of failures. Information contagion is stronger for rivals in the same locale or the same line of business and is stronger in cases of distress than in bankruptcies.
{"title":"Financial Firm Bankruptcy and Contagion","authors":"Jean Helwege, Gaiyan Zhang","doi":"10.2139/ssrn.2020776","DOIUrl":"https://doi.org/10.2139/ssrn.2020776","url":null,"abstract":"The Lehman bankruptcy highlights the potential for interconnectedness to cause negative externalities through counterparty contagion, but the externalities may also arise from information contagion. We examine contagion from troubled financial firms and find that counterparty contagion is greater during recessions and in cases of riskier firms and larger and more complex exposures. However, the counterparty exposures are small, especially among banks that face diversification regulations, and do not typically cause a cascade of failures. Information contagion is stronger for rivals in the same locale or the same line of business and is stronger in cases of distress than in bankruptcies.","PeriodicalId":112313,"journal":{"name":"CGN: Dissolutions & Bankruptcy Reorganizations (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127850344","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
International Bankruptcy Law is a very trendy topic. Many countries have reformed their national Acts seeking to adapt them to the current economic situation. Also Spain did this some years ago. The New Spanish Bankruptcy Act of 2003 includes some rules on International Bankruptcy. These rules are directly linked to the EU Regulation on cross-border insolvency and depend on it. The article analyze in depth solutions embodied in the Act and their -not always easy- relationship with the Regulation. Something that happens in some other EU Member States.
{"title":"International Bankruptcy in Spain","authors":"C. Esplugues, Silvia Barona Vilar","doi":"10.2139/SSRN.1952782","DOIUrl":"https://doi.org/10.2139/SSRN.1952782","url":null,"abstract":"International Bankruptcy Law is a very trendy topic. Many countries have reformed their national Acts seeking to adapt them to the current economic situation. Also Spain did this some years ago. The New Spanish Bankruptcy Act of 2003 includes some rules on International Bankruptcy. These rules are directly linked to the EU Regulation on cross-border insolvency and depend on it. The article analyze in depth solutions embodied in the Act and their -not always easy- relationship with the Regulation. Something that happens in some other EU Member States.","PeriodicalId":112313,"journal":{"name":"CGN: Dissolutions & Bankruptcy Reorganizations (Topic)","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128097555","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
As much as half of the US population would 'benefit' financially from filing for bankruptcy. These benefits are in the tens of thousands of dollars. Then, why don't they file? Amongst the financial decisions that individuals make, this ranks as one of the largest in magnitude. Using a comprehensive dataset of more than 27 million individual credit reports, we identify both the presence of social interactions and separate the relative influence of stigma and information on the bankruptcy decision. We find 1) Combined social spillovers are 30-50 times larger than commonly used measures of economic and financial hardship, and of large economic significance in the bankruptcy decision. A 1% increase in local filing rates leads to a 25-40% increase in the individual probability of filing. 2) Both information diffusion and falling stigma are economically important and growing in magnitude. 3) Information diffusion is more likely responsible for the continued increase in bankruptcy rates. 4) These effects vary significantly across income and educational groups. Since so many could still benefit from filing, as information continues to spread, the bankruptcy rate will likely continue to rise.
{"title":"Social Influence and Bankruptcy: Why do so Many Leave so Much on the Table?","authors":"Ethan Cohen-Cole, Burcu Duygan-Bump","doi":"10.2139/ssrn.1423964","DOIUrl":"https://doi.org/10.2139/ssrn.1423964","url":null,"abstract":"As much as half of the US population would 'benefit' financially from filing for bankruptcy. These benefits are in the tens of thousands of dollars. Then, why don't they file? Amongst the financial decisions that individuals make, this ranks as one of the largest in magnitude. Using a comprehensive dataset of more than 27 million individual credit reports, we identify both the presence of social interactions and separate the relative influence of stigma and information on the bankruptcy decision. We find 1) Combined social spillovers are 30-50 times larger than commonly used measures of economic and financial hardship, and of large economic significance in the bankruptcy decision. A 1% increase in local filing rates leads to a 25-40% increase in the individual probability of filing. 2) Both information diffusion and falling stigma are economically important and growing in magnitude. 3) Information diffusion is more likely responsible for the continued increase in bankruptcy rates. 4) These effects vary significantly across income and educational groups. Since so many could still benefit from filing, as information continues to spread, the bankruptcy rate will likely continue to rise.","PeriodicalId":112313,"journal":{"name":"CGN: Dissolutions & Bankruptcy Reorganizations (Topic)","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124093098","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 1983-04-01DOI: 10.1017/CBO9780511609435.030
M. Roe
Two of the core determinations made in a reorganization proceeding under chapter 11 of the Bankruptcy Code' are simply stated: Who gets how much? What will the new capital structure be? To resolve these simply stated questions of valuation and recapitalization, bankruptcy courts loosely oversee a lengthy bargaining process that is widely thought to be cumbersome, costly, and complex. The strain of extended financial stress results in lost sales when customers seek a more secure supply source, in consumption of valuable management time spent resolving financial difficulties, and in forgone opportunities to obtain new projects. Additional costs are borne by the employees, customers, and suppliers of the bankrupt company, as well as the comnunities in which it operates. Furthermore, while contraction of the bankrupt firm is usually in order, parts of the firm may sometimes be liquidated even though liquidation value is less than operational value. Finally, the firm often emerges from reorganization with an unnecessarily complex capital structure. Such a complex capital structure can cause the reorganized firm to adopt poor operational strategies, prevent it from raising new capital, and pose a barrier to a healthy merger.
{"title":"Bankruptcy and Debt: A New Model for Corporate Reorganization","authors":"M. Roe","doi":"10.1017/CBO9780511609435.030","DOIUrl":"https://doi.org/10.1017/CBO9780511609435.030","url":null,"abstract":"Two of the core determinations made in a reorganization proceeding under chapter 11 of the Bankruptcy Code' are simply stated: Who gets how much? What will the new capital structure be? To resolve these simply stated questions of valuation and recapitalization, bankruptcy courts loosely oversee a lengthy bargaining process that is widely thought to be cumbersome, costly, and complex. The strain of extended financial stress results in lost sales when customers seek a more secure supply source, in consumption of valuable management time spent resolving financial difficulties, and in forgone opportunities to obtain new projects. Additional costs are borne by the employees, customers, and suppliers of the bankrupt company, as well as the comnunities in which it operates. Furthermore, while contraction of the bankrupt firm is usually in order, parts of the firm may sometimes be liquidated even though liquidation value is less than operational value. Finally, the firm often emerges from reorganization with an unnecessarily complex capital structure. Such a complex capital structure can cause the reorganized firm to adopt poor operational strategies, prevent it from raising new capital, and pose a barrier to a healthy merger.","PeriodicalId":112313,"journal":{"name":"CGN: Dissolutions & Bankruptcy Reorganizations (Topic)","volume":"51 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1983-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127756791","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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