Empirical Analysis and Trading Strategies for Defaulted Debt Securities with Models for Risk and Investment Management

This study empirically analyzes the historical performance of defaulted debt from Moody’s Ultimate Recovery Database (1987-2010). Motivated by a stylized structural model of credit risk with systematic recovery risk, we argue and find evidence that returns on defaulted debt co-vary with determinants of the market risk premium, firm specific and structural factors. Defaulted debt returns in our sample are observed to be increasing in collateral quality or debt cushion of the issue. Returns are also increasing for issuers having superior ratings at origination, more leverage at default, higher cumulative abnormal returns on equity prior to default, or greater market implied loss severity at default. Considering systematic factors, returns on defaulted debt are positively related to equity market indices and industry default rates. On the other hand, defaulted debt returns decrease with short-term interest rates. In a rolling out-of-time and out-of-sample resampling experiment we show that our leading model exhibits superior performance. We also document the economic significance of these results through excess abnormal returns, implementing a hypothetical trading strategy, of around 5-6% (2-3%) assuming zero (1bp per month) round-trip transaction costs. These results are of practical relevance to investors and risk managers in this segment of the fixed income market.Distressed Debt; Recoveries; Default; Credit Risk

A second anniversary operational review of the OmniTRACS(R): The first two-way mobile Ku-band satellite communications system

A novel two-way mobile satellite communications and vehicle position reporting system that is currently operational in the United States and Europe is described. The system characteristics and service operations are described in detail. Technical descriptions of the equipment and signal processing techniques are provided

Optimizing The World’s Leading Corporate Law: A 20-Year Retrospective and Look Ahead

In a 2001 article (Function Over Form: A Reassessment of Standards of Review in Delaware Corporation Law) two of us, with important input from the other, argued that in addressing issues like hostile takeovers, assertive institutional investors, leveraged buyouts, and contested ballot questions, the Delaware courts had done exemplary work but on occasion crafted standards of review that unduly encouraged litigation and did not appropriately credit intra-corporate procedures designed to ensure fairness. Function Over Form suggested ways to make those standards more predictable, encourage procedures that better protected stockholders, and discourage meritless litigation, by restoring business judgment rule protection for transactions approved by independent directors, the disinterested stockholders, or both. This article examines how Delaware law responded to the prior article’s recommendations, concluding that the Delaware judiciary has addressed most of them constructively, thereby creating incentives to use procedures that promote the fair treatment of stockholders and discourage meritless litigation. The continued excellence and diligence of the Delaware judiciary is one of Delaware corporate law’s core strengths. But some recent cases have articulated standards of review that involve greater than optimal litigation intensity and less than ideal respect for decision-making in which independent directors and disinterested stockholders have potent say. Those standards also impair the integrity of Delaware’s approach to demand excusal in derivative cases and the identification of controlling stockholders. We also propose eliminating concepts like substantive coercion that do not provide a legitimate basis for resolving cases. Finally, we urge action to correct new problems such as the unfair targeting of corporate officers for negligence claims in representative actions and the frustrating state of practice under Delaware’s books and records statute

Rattus Model Utilizing Selective Pulmonary Ischemia Induces Bronchiolitis Obliterans Organizing Pneumonia

Bronchiolitis obliterans organizing pneumonia (BOOP), a morbid condition when associated with lung transplant and chronic lung disease, is believed to be a complication of ischemia. Our goal was to develop a simple and reliable model of lung ischemia in the Sprague-Dawley rat that would produce BOOP. Unilateral ischemia without airway occlusion was produced by an occlusive slipknot placed around the left main pulmonary artery. Studies were performed 7 days later. Relative pulmonary and systemic flow to each lung was measured by injection of technetium Tc 99m macroaggregated albumin. Histological sections were examined for structure and necrosis and scored for BOOP. Apoptosis was detected by immunohistochemistry with an antibody against cleaved caspase 3. Pulmonary artery blood flow to left lungs was less than 0.1% of the cardiac output, and bronchial artery circulation was ~2% of aortic artery flow. Histological sections from ischemic left lungs consistently showed Masson bodies, inflammation, and young fibroblasts filling the distal airways and alveoli, consistent with BOOP. In quantitative evaluation of BOOP using epithelial changes, inflammation and fibrosis were higher in ischemic left lungs than right or sham-operated left lungs. Apoptosis was increased in areas exhibiting histological BOOP, but there was no histological evidence of necrosis. Toll-like receptor 4 expression was increased in ischemic left lungs over right. An occlusive slipknot around the main left pulmonary artery in rats produces BOOP, providing direct evidence that ischemia without immunomodulation or coinfection is sufficient to initiate this injury. It also affords an excellent model to study signaling and genetic mechanisms underlying BOOP