 Asset-Backed Securities: Costs and Benefits of "Bankruptcy Remoteness"Kenneth Ayotte and Stav Gaon The Review of Financial Studies, 2011, vol. 24, issue 4, 1299-1335 Abstract: This article focuses on a key property of asset-backed securities (ABS); namely, that ABS are designed to achieve "bankruptcy remoteness" of securitized assets from the borrowing firm. This provides lenders with protection from dilution that is not available with contracts such as secured debt. ABS allows firms to commit to more efficient investment decisions in bankruptcy. Securitization of replaceable assets (such as receivables) prevents inefficient continuation, but securitization of necessary assets can produce ex-post inefficiency, which favors secured debt. We test a prediction of our model using the LTV Steel bankruptcy, in which bankruptcy remoteness was successfully challenged. We find that ABS spreads for Chapter 11--eligible securitizers increased significantly more than spreads for Chapter 11--ineligible securitizers following LTV. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press. Date: 2011 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:24:y:2011:i:4:p:1299-1335 Ordering information: This journal article can be ordered from Access Statistics for this article The Review of Financial Studies is currently edited by Itay Goldstein More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC. |
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