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Repo Priority Right and the Bankruptcy Code

Jun Kyung Auh and Suresh Sundaresan

Critical Finance Review, 2020, vol. 9, issue 1-2, 77-114

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.

Keywords: Bankruptcy code; Super seniority; Maturity structure (search for similar items in EconPapers)
JEL-codes: G33 G28 G32 (search for similar items in EconPapers)
Date: 2020
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