Why Are Delaware and New York Bankruptcy Reorganizations Failing?

Before 1990, the United States Bankruptcy Court for the District of Delaware was a sleepy backwater. During the entire decade of the 1980s, Phoenix Steel-whose only plant was located in Delaware-was the only large, public company to file there. In 1990, two large, public companies-Continental Airlines and United Merchants and Manufacturers-filed in Delaware. They constituted 7% of the twenty-nine large, public companies filing in the United States that year. From 1990 to 1996, Delaware\u27s market share steadily increased to 87% (thirteen of fifteen cases).\u27 In just seven years, Delaware had become the bankruptcy reorganization capital of the United States. Lynn LoPucki and Sara Kalin recently suggested that the Delaware bankruptcy court\u27s spectacular success in winning market share may have been accompanied by an equally spectacular failure in the reorganizations that the court processed during those years. Their suggestion was based principally on an empirical finding that by February 2000, nine of the thirty companies (30%) emerging from bankruptcy reorganization in Delaware from 1991 to 1996 had filed bankruptcy a second time. Excluding New York-which had a refiling rate almost as high as Delaware\u27s (23%)-only four of the seventy-five large, public companies (5%) emerging from bankruptcy in other courts during the same period filed a second time. LoPucki and Kalin\u27s study made only a preliminary attempt to discover the reasons for Delaware\u27s higher refiling rate. But, as their findings on the disparity of refiling rates gained wide publicity, bankruptcy scholars, lawyers, and judges offered a variety of possible explanations. Most of those explanations sought to exonerate the because it ignores distressed debtors that fail without refiling. Some argued that the firms filing in Delaware might have been more difficult to reorganize because they had more complex capital structures or more serious business problems. Others argued that Delaware\u27s high refiling rate was economically efficient, implying that other courts should ease their standards and accept higher refiling rates. Still others argued that it was impossible to know whether Delaware was doing a worse job without knowing the individual reasons that each reorganization failed

Bankruptcy Fire Sales

For more than two decades, scholars working from an economic perspective have criticized the bankruptcy reorganization process and sought to replace it with market mechanisms. In 2002, Professors Douglas G. Baird and Robert K. Rasmussen asserted in The End of Bankruptcy, an article published in the Stanford Law Review, that improvements in the market for large, public companies had rendered reorganization obsolete. Going concern value could be captured through sale. This article reports the results of an empirical study comparing the recoveries in bankruptcy sales of large public companies in the period 2000-2004 with the recoveries in bankruptcy reorganizations during the same period. We find that, controlling for company values reported at case commencement, pre-filing operating profits, and post-filing operating profits, the recoveries in reorganization cases are more than double the recoveries from going concern sales. We attribute the low recoveries in sale cases to continuing market illiquidity and the corruption of the bankruptcy process by competition among bankruptcy courts for large, public company cases. We also find that bankruptcy recoveries are higher in years when merger and acquisition activity is higher for reasons other than high stock prices. Lastly, we find that bankruptcy recoveries are higher when debt capacity in the debtor\u27s industry is lower - the opposite effect predicted by Professors Andrei Shleifer & Robert W. Vishny in their landmark article in 1992

Bankruptcy Survival

Of the large, public companies that seek to remain in business through bankruptcy reorganization, only 70% succeed. The assets of the other 30% are absorbed into other businesses. Success is important both because it is efficient and it preserves jobs, communities, supplier and customer relationships, and tax revenues. This Article reports the findings of the first comprehensive study of the division into successful and failed reorganizations. Eleven conditions best predict companies’ survival prospects. First, a company that even hints in the press release announcing its bankruptcy that it intends to sell its business is highly likely to fail. Second, reorganizations assigned to more experienced judges are more likely to succeed. Third, companies headquartered in isolated geographical areas are more likely to fail. Fourth, companies that report greater shareholder equity are more likely to fail. Fifth, companies with creditors’ committees are more likely to fail. Sixth, companies with DIP loans are more likely to succeed. Seventh, companies that prepackage or prenegotiate their plans are more likely to succeed. Eighth, companies are more likely to succeed if interest rates are low in the pre-filing period. The final three conditions are that companies are more likely to succeed if they are larger, if they are manufacturers, and if they have positive operating income prior to filing. System participants can improve survival rates by shifting cases to more experienced judges and perhaps also by greater attention to the decisions to appoint committees, prenegotiate plans, obtain DIP loans, and publicly seek alliances

Why are Delaware and New York Bankruptcy Reorganizations Failing?

Why are Delaware and New York Bankruptcy Reorganizations Failing

Delaware Bankruptcy: Failure in the Ascendancy

In 1990, the United States Bankruptcy Court for the District of Delaware - then a one-judge backwater - began competing for big bankruptcy cases. In six years, that court achieved a near monopoly. In 2000, LoPucki and Kalin discovered that 42% of the companies filing in Delaware during that six year period of ascendency refiled bankruptcy within five years of their emergence, as compared with only 6% of those filing in courts other than Delaware and New York. In a later study, we found the (1) the failure of the companies reorganized in Delaware during the period of ascendency was robust across several measures of failure and (2) the Delaware filers were not different from the other court filers in any way that might account for the higher refailure rates. In a review of LoPucki\u27s book Courting Failure (University of Michigan Press 2005), An Efficiency-Based Explanation for Current Corporate Reorganization Practice, 73 University of Chicago Law Review 425 (2006), Professors Kenneth Ayotte and David A. Skeel, Jr. came to Delaware\u27s defense with an economic model and new empirical evidence. They argued, in essence, that companies with worse prospects for reorganization chose Delaware reorganization because it was cheaper. Because this group of companies was weaker, creditors put them on a short[er] leash, by saddling them with high debt levels. The higher rate of refiling that resulted was nevertheless efficient because refiling costs were low. In this essay we respond that the Ayotte-Skeel model is based on the assumption of a selection effect for which there is neither a shred of empirical evidence nor even a variable proposed for measurement. We demonstrate that it is mathematically impossible for the cost savings from Delaware\u27s shorter bankruptcies to offset the cost of so many second bankruptcies. We also note that the Ayotte-Skeel model leads to several predictions in conflict with the empirical evidence. We argue that refailure is costly and propose an empirical approach to quantify those costs. We praise Ayotte and Skeel\u27s discovery that the EBITDA of firms emerging from Delaware bankruptcy was not significantly different from the EBITDA of firms emerging from bankruptcy in other courts during the period of ascendency. We agree that their findings suggest leverage played a greater role in the failure of the Delaware companies than we had previously thought. Lastly, we respond to Ayotte and Skeel\u27s argument that DIP lenders, other creditors, and bankruptcy courts can prevent the case placers from using their leverage over the bankruptcy courts to externalize costs. The DIP lenders will not prevent the externalization because they are themselves case placers. Other creditors cannot prevent the externalization because no procedural means exist by which they could do so. The bankruptcy courts cannot prevent the externalization because the case placers avoid courts that attempt to place limits on them

Delaware Bankruptcy: Failure in the Ascendancy

In 1990, the United States Bankruptcy Court for the District of Delaware - then a one-judge backwater - began competing for big bankruptcy cases. In six years, that court achieved a near monopoly. In 2000, LoPucki and Kalin discovered that 42% of the companies filing in Delaware during that six year period of ascendency refiled bankruptcy within five years of their emergence, as compared with only 6% of those filing in courts other than Delaware and New York. In a later study, we found the (1) the failure of the companies reorganized in Delaware during the period of ascendency was robust across several measures of failure and (2) the Delaware filers were not different from the other court filers in any way that might account for the higher refailure rates. In a review of LoPucki\u27s book Courting Failure (University of Michigan Press 2005), An Efficiency-Based Explanation for Current Corporate Reorganization Practice, 73 University of Chicago Law Review 425 (2006), Professors Kenneth Ayotte and David A. Skeel, Jr. came to Delaware\u27s defense with an economic model and new empirical evidence. They argued, in essence, that companies with worse prospects for reorganization chose Delaware reorganization because it was cheaper. Because this group of companies was weaker, creditors put them on a short[er] leash, by saddling them with high debt levels. The higher rate of refiling that resulted was nevertheless efficient because refiling costs were low. In this essay we respond that the Ayotte-Skeel model is based on the assumption of a selection effect for which there is neither a shred of empirical evidence nor even a variable proposed for measurement. We demonstrate that it is mathematically impossible for the cost savings from Delaware\u27s shorter bankruptcies to offset the cost of so many second bankruptcies. We also note that the Ayotte-Skeel model leads to several predictions in conflict with the empirical evidence. We argue that refailure is costly and propose an empirical approach to quantify those costs. We praise Ayotte and Skeel\u27s discovery that the EBITDA of firms emerging from Delaware bankruptcy was not significantly different from the EBITDA of firms emerging from bankruptcy in other courts during the period of ascendency. We agree that their findings suggest leverage played a greater role in the failure of the Delaware companies than we had previously thought. Lastly, we respond to Ayotte and Skeel\u27s argument that DIP lenders, other creditors, and bankruptcy courts can prevent the case placers from using their leverage over the bankruptcy courts to externalize costs. The DIP lenders will not prevent the externalization because they are themselves case placers. Other creditors cannot prevent the externalization because no procedural means exist by which they could do so. The bankruptcy courts cannot prevent the externalization because the case placers avoid courts that attempt to place limits on them

Two-dimensional Nanolithography Using Atom Interferometry

We propose a novel scheme for the lithography of arbitrary, two-dimensional nanostructures via matter-wave interference. The required quantum control is provided by a pi/2-pi-pi/2 atom interferometer with an integrated atom lens system. The lens system is developed such that it allows simultaneous control over atomic wave-packet spatial extent, trajectory, and phase signature. We demonstrate arbitrary pattern formations with two-dimensional 87Rb wavepackets through numerical simulations of the scheme in a practical parameter space. Prospects for experimental realizations of the lithography scheme are also discussed.Comment: 36 pages, 4 figure

Phenology largely explains taller grass at successful nests in greater sage-grouse

Much interest lies in the identification of manageable habitat variables that affect key vital rates for species of concern. For ground-nesting birds, vegetation surrounding the nest may play an important role in mediating nest success by providing concealment from predators. Height of grasses surrounding the nest is thought to be a driver of nest survival in greater sage-grouse (Centrocercus urophasianus; sage-grouse), a species that has experienced widespread population declines throughout their range. However, a growing body of the literature has found that widely used field methods can produce misleading inference on the relationship between grass height and nest success. Specifically, it has been demonstrated that measuring concealment following nest fate (failure or hatch) introduces a temporal bias whereby successful nests are measured later in the season, on average, than failed nests. This sampling bias can produce inference suggesting a positive effect of grass height on nest survival, though the relationship arises due to the confounding effect of plant phenology, not an effect on predation risk. To test the generality of this finding for sage-grouse, we reanalyzed existing datasets comprising \u3e800 sage-grouse nests from three independent studies across the range where there was a positive relationship found between grass height and nest survival, including two using methods now known to be biased. Correcting for phenology produced equivocal relationships between grass height and sage-grouse nest survival. Viewed in total, evidence for a ubiquitous biological effect of grass height on sage-grouse nest success across time and space is lacking. In light of these findings, a reevaluation of land management guidelines emphasizing specific grass height targets to promote nest success may be merited

Analysing livestock network data for infectious diseases control:an argument for routine data collection in emerging economies

Livestock movements are an important mechanism of infectious disease transmission. Where these are well recorded, network analysis tools have been used to successfully identify system properties, highlight vulnerabilities to transmission, and inform targeted surveillance and control. Here we highlight the main uses of network properties in understanding livestock disease epidemiology and discuss statistical approaches to infer network characteristics from biased or fragmented datasets. We use a ‘hurdle model’ approach that predicts (i) the probability of movement and (ii) the number of livestock moved to generate synthetic ‘complete’ networks of movements between administrative wards, exploiting routinely collected government movement permit data from northern Tanzania. We demonstrate that this model captures a significant amount of the observed variation. Combining the cattle movement network with a spatial between-ward contact layer, we create a multiplex, over which we simulated the spread of ‘fast’ (R0 = 3) and ‘slow’ (R0 = 1.5) pathogens, and assess the effects of random versus targeted disease control interventions (vaccination and movement ban). The targeted interventions substantially outperform those randomly implemented for both fast and slow pathogens. Our findings provide motivation to encourage routine collection and centralization of movement data to construct representative networks. This article is part of the theme issue ‘Modelling infectious disease outbreaks in humans, animals and plants: epidemic forecasting and control’. This theme issue is linked with the earlier issue ‘Modelling infectious disease outbreaks in humans, animals and plants: approaches and important themes’