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The ownership and trading of debt claims in Chapter 11 restructurings

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  • Ivashina, Victoria
  • Iverson, Benjamin
  • Smith, David C.

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.

Suggested Citation

  • Ivashina, Victoria & Iverson, Benjamin & Smith, David C., 2016. "The ownership and trading of debt claims in Chapter 11 restructurings," Journal of Financial Economics, Elsevier, vol. 119(2), pages 316-335.
    • Handle: RePEc:eee:jfinec:v:119:y:2016:i:2:p:316-335
    DOI: 10.1016/j.jfineco.2015.09.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Chapter 11; Ownership structure; Distressed debt; Trading in bankruptcy;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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