The average difference between the court value and post-emergence market value of newly issued stocks in Chapter 11 reorganizations exceeds 50%. We show that public dissemination of transactions in defaulted bonds reduces this difference by 23% and largely eliminates inter-claimant wealth transfers.
The effects of dissemination are only significant when the bonds are sufficiently traded around the court valuation date, and when they receive significant amounts of post-emergence equity, indicating that the bond’s value is sensitive to the size and allocation of the pie. These findings imply that security prices have real effects: They improve the valuations of bankruptcy participants.
The large companies that currently file for Chapter 11 look very different than the typical Chapter 11 cases of the past. The liability side of debtors’...
In recent years, there has been a significant increase in the issuance of sustainability-linked loans (SLLs), where loan contract terms depend on the...