DefaultRisk.com the web's biggest credit risk modeling resource.

Credit Jobs

Home Glossary Links FAQ / About Site Guide Search
pp_recov_43

Up

Submit Your Paper

In Rememberance: World Trade Center (WTC)

doi> search: A or B

Export citation to:
- HTML
- Text (plain)
- BibTeX
- RIS
- ReDIF

Is Bargaining in Chapter 11 Costly?

by Maria Carapeto of Cass Business School

October 6, 2003

Abstract: This paper investigates the issue of bankruptcy costs in multiple-plan Chapter 11s. I concentrate on the first (rejected) and last (effective) plans of reorganization and find that the distribution to claimants shrinks by 6.5% during this period of extended bargaining, inducing extra bankruptcy costs of 2.8% of assets. Unsecured creditors constitute the driving force in the negotiation, as they seem to reject plans with unfavorable deviations from absolute priority. In this way, they cause delay in the negotiations, even if they risk ending up with a lower recovery due to firm value erosion along with other classes of claimants.

JEL Classification: C72, C78, G33.

Keywords: Bankruptcy costs, Bargaining, Recovery rates, Deviations from absolute priority, Multiple-plan firms, Single-plan firms.

Books Referenced in this paper:  (what is this?)

Download paper (188K PDF) 37 pages