Snake in the grass 潜藏的敌人
Chapter 11 is no longer a haven for deadbeat debtors
IN THE EARLY 1980s Houston lived through a real-estate frenzy. Then the oil price crashed. Humble Place, a 30-acre tract divided into land parcels, was one of many unfinished projects. The developer filed for Chapter 11 bankruptcy. By the start of the 1990s, his creditors were still unpaid. A court heard that his recovery plan amounted to “mowing the grass and waiting for the market to turn”.
Such cases shaped a particular view of Chapter 11, the bit of America’s bankruptcy code directed at preserving businesses rather than winding them up. It was widely seen as a way to enrich lawyers and a means for debtors to frustrate creditors endlessly. The growing caseload in the wake of the covid-19 recession is likely to give new life to critics of Chapter 11. There are serial users. NorthEast Gas Generation, of Texas, recently joined the “Chapter 33” club. It has filed three times in six years.
这类案例让人们对《破产法》第十一章这个意在保留企业而不是让其关门的条款生发出一种别样的观感。人们普遍认为，它成了律师的致富之道和债务人无休止赖账的手段。疫情引发经济衰退后，申请破产保护的案例增加，第十一章很可能会引来新一轮的批评。有些公司是“惯犯”。德克萨斯州的东北天然气发电公司（NorthEast Gas Generation）最近加入了“第三十三章”俱乐部——它在六年内提交了三次申请。
A perennial bugbear is that Chapter 11 keeps the debtor in possession of the business. If unpaid debts do not spell the sack for management, say critics, then where is its incentive to be prudent? Yet a system that leans towards keeping a firm alive helps preserve its value. Bankruptcy is no longer creditor versus debtor, if it ever was. It is—as it should be—a wrangle between creditors. And these days it is secured bondholders who appear to be in control of the process.
Why involve the courts at all? In the case of a single debtor and a single creditor, there is not much to adjudicate. A property firm owes $2m to a bank. It defaults. The bank seizes the assets. Case closed. Things become messier when there are lots of competing claims on a troubled company. There is then an incentive for creditors to rush to get their money out while they can, which can undermine the business and destroy value for other creditors. Bankruptcy allows for a stay on legal action while the parties sort out what happens to the business and decide who gets what.
The first goal of a bankruptcy process is to maximise the proceeds. For a business that is bleeding cash, the best option may be liquidation: selling off buildings, equipment, patents and other assets. But a lot of the value of an enterprise is tied up in intangible assets, such as the skills of its workforce or its relationships with suppliers and customers. So getting the most value often means selling the business as a going concern, or finding other ways for it to continue. The second goal is to preserve the priority of claims so that senior creditors are paid first and common-equity holders paid last. This is vital to the working of capital markets. Securities should be priced according to their risks.
A third goal may be ensuring that a firm’s managers pay a penalty for its going bankrupt. But that may clash with the first goal. Managers who know a business are probably best placed to preserve its value.
A big sticking point is working out just how much value is in the business. Take Broke N Hungry, a hypothetical casual-dining chain, which has filed for Chapter 11. It has two creditors, Narcissus Capital, which owns $100m of senior debt and CovLite Capital, which owns $100m of junior debt. The liquidation value of Broke N Hungry’s assets is $100m. But there is uncertainty about its value as a going concern. There is a 50-50 chance that a vaccine for covid-19 is found. If it is found, Broke N Hungry is worth $200m; if not, the business is worth $50m. The expected value of it is thus $125m. The right decision is to keep it going. But Narcissus will not see it that way. In a liquidation it is sure to get its money back. If the business carries on, it gains nothing extra if things go well and loses $50m if things go badly. So it will favour liquidation, denying CovLite the chance to get its money back.
整个过程中最大的分歧点在于确定公司的价值。假设有一家名为“破多饥”（Broke N Hungry）的餐饮连锁店，它已经走了第十一章破产程序。它有两个债权人：拥有一亿美元优先级债务的“水仙资本”（Narcissus Capital）和拥有一亿美元次级债务的“疫轻资本”（CovLite Capital）。连锁店资产的清算价值为一亿美元。但其持续经营的价值存在不确定性。找到新冠疫苗的机会是50%。找到的话，破多饥的价值将达到两亿美元，如果找不到，则将跌至5000万美元。因此其预期价值为1.25亿美元。正确的决定是让它继续经营下去。但水仙资本不会这么想。一旦清算，它就能收回自己的资金。继续经营的话，如果进展顺利，它也得不到额外的好处；而如果不顺利，它将损失5000万美元。因此，它将赞成清算，而这样一来疫轻资本就没机会拿回自己的钱。
Reality is trickier still. The uncertainty is greater and there are many different classes of debt. But today senior creditors seem to be getting the upper hand. Perhaps that is because more and more of them are savvy distressed-debt specialists, often from the world of private equity. They buy up the secured debt of troubled firms with the aim of becoming owners. They offer a financing package to tide the business over. And they make a bid to buy out other creditors.
Do the unsecured bondholders get a raw deal? “Put it this way”, deadpans a law professor, “everybody wants to be a senior secured creditor.” The power in Chapter 11 ebbs and flows. The shift might even be traced back to the Humble Place case. An appeals-court judge eventually ruled against the debtor. The case notes do not record whether a lawnmower was one of the seized assets.