18 July 2011

How Much Do Bondholders Recovery In Chapter 11?

A recent study by Wei Wang looked at payouts to bondholders for a complete sample of recent Chapter 11 bankruptcies involving companies with assets of $100 million or more.  Unsurprisingly, subordinated debts (where bondholders agree to receive payment only after all other debts are paid in bankruptcy) had payouts of next to nothing, while secured debt (i.e. debt backed by collateral) usually received full or near full payouts.  Ordinary unsecured bonds received an average of 41 cents on the dollar, although the median recover of 22 cents on the dollars was much lower. The results:

Variables (N) Mean Median

Senior Secured (35) 77.53% 100.00%

Senior Unsecured (278) 41.01% 21.82%

Both Senior Classes (313) 45.09% 28.00%

Senior Subordinated (59) 18.87% 5.28%

Subordinated (52) 11.34% 0.35%

Both Subordinated Classes (111) 15.34% 1.00%

All (424) 37.31% 21.52%

Stockholders receive nothing in 80% of Chapter 11 bankruptcies.

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