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Repo Priority Right and the Bankruptcy Code

Author

Listed:
  • Kyung Auh, Jun
  • Sundaresan, Suresh

Abstract

This paper shows that when the bankruptcy code protects the creditors’ rights with no impairments to secured creditors, issuance of debt such as repo with exemption from automatic stay adds no value. When the bankruptcy process admits violations of absolute priority rules or results in collateral impairments to secured creditors, the liability structure includes short-term debt, with safe harbor protection when the pledged collateral satisfies a minimum liquidity threshold. Safe harbor rights lead firms to issue more short-term debt, less long-term debt and increase the long-term spreads.

Suggested Citation

  • Kyung Auh, Jun & Sundaresan, Suresh, 2020. "Repo Priority Right and the Bankruptcy Code," Critical Finance Review, now publishers, vol. 9(1-2), pages 77-114, June.
    • Handle: RePEc:now:jnlcfr:104.00000055
    DOI: 10.1561/104.00000055
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    More about this item

    Keywords

    Bankruptcy code; Super seniority; Maturity structure;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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