The changing nature of chapter 11

Abstract

The U.S. Chapter 11 bankruptcy has traditionally been viewed as equity friendly, with frequent absolute priority deviations (APDs) in favor of equity. By contrast, based on a more recent samplewe find that both APDs and time spent in bankruptcy have declined dramatically. We hypothesize and confirm that innovations in the bankruptcy process, such as reliance on debtor-in-possession(DIP) financing and adoptions of key employee retention plans (KERPs) help explain this decline. We conclude that while the letter of bankruptcy law has not changed, Chapter 11 outcomes havebecome more creditor friendly in recent years.