Research Summary

The Ownership and Trading of Debt Claims in Chapter 11 Restructurings (with Victoria Ivashina and David Smith)



This paper explores a novel data set that identifies over 71,000 investors holding debt claims of 136 companies filing for U.S. Chapter 11 bankruptcy protection during the period of 1998 through 2009. We investigate how concentration in debt ownership relates to Chapter11 restructurings, and how claims trading during the restructuring influences ownership concentration. Consistent with theoretical work, we find that the overall concentration of debt ownership increases the speed with which a restructuring is completed, via both pre-filing prepack/ prearranged restructurings and traditional in-court proceedings. Increased concentration also leads to higher probability of a firm sale and lower probability of a liquidation. Our results indicate that concentration of debt ownership increases significantly over the course of the case. We establish that trading during the case, particularly via claims purchases by asset management firms and hedge funds, leads to higher concentration of ownership when a plan of reorganization is voted upon.

Full paper available on SSRN.