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Empirical Evidence on Debt Trading

posted by Bob Lawless

Katie Porter's earlier post on debt trading (which has gotten some attention at The Conglomerate) reminded me of some poking around that I had been doing. Trading claims in bankruptcy is huge, in the billions of dollars per year. Although Katie Porter's post was in the context of consumer bankruptcy, bankruptcy claims trading can have decisive effects in huge corporate reorganizations. A corporate debtor in financial distress may find itself no longer dealing with a lender interested in a long-term relationship but with a so-called "vulture investor" interested only in maximizing short-term profits. Of course, without the ability to resell a loan, the lender might not have made the loan in the first place. None of this is to say that bankruptcy claims trading is either good or bad, but we don't know much about it.

I was trying to see if one could get data on bankruptcy claims trading and trading in distressed debt generally. (And by "I," I mean by my extremely capable faculty assistant.) It turns out you can get such data, if you have thousands of dollars to pay for expensive data subscription services. With the other things on my plate, I could not justify the time and money to invest in such a research project, but it strikes me as a fruitful area for investigation. Because we have so few data, it's an empirical project where the researcher would have something to say no matter what the data showed. Even a paper with descriptive data would make a huge contribution.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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