Analysis of Length of Time Spent in Chapter 11 Bankruptcy

Abstract

This paper investigates original issuers of high yield bonds in Chapter 11 bankruptcy to determine which factors affect the length of time spent in Chapter 11. In order to do this analysis we propose a flexible new duration model, the censored partial regression model. This model allows us to consider the effect of some variable on the duration using a nonparametric functional form. We find that the choice of prepackaged Chapter 11, the length of time negotiating before filling for Chapter 11, the profitability, the highly leveraged transactions, the participation on different disputes, the role of vulture funds and some institutional changes turn out to be relevant to analyze this duration.