No. of Recommendations: 1

On the treatment of bonds in bankruptcy. In general, seniority is all that matter, but that is not always the case.

Maturities can most certainly be taken into account by a judge, especially if influencial stakeholders own either near, or longer term issues. Also, coupon is almost always taken into account from what I have seen (although my sample size is small) in terms of the post bankruptcy interest accrued for each bond.

To give you one reference that I think will help you, see the following:

Page 14, "Motivated by the fact that bonds of the same seniority are usually grouped into one claim class regardless of coupon and maturity at bankruptcy resolution, we assume that bonds of the same seniority at
default have the same recovery rate."
-- Note: See also see Guha (2003) and Cantor and Varma (2005)

I can't remember the details, but I recently saw a Ch 11 resolution where near term maturities were given more cash out in the restructuring while longer term issues received more equity in the recapped company. Not sure how unusual this was, but it does happen, and it all is determined by who has a seat at the table and what the judge deems as fair... and who is putting up money for the recap.

My 2 cents... there are no hard rules in Ch11.

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