Asset-Backed Securities: Costs and Benefits of 'Bankruptcy Remoteness'

摘要

This article focuses on a key property of asset-backed securities (ABS); namely, that ABS are designed to achieve "bankruptcy remoteness" of securitized assets from the borrowing firm. This provides lenders with protection from dilution that is not available with contracts such as secured debt. ABS allows firms to commit to more efficient investment decisions in bankruptcy. Securitization of replaceable assets (such as receivables) prevents inefficient continuation, but securitization of necessary assets can produce ex-post inefficiency, which favors secured debt. We test a prediction of our model using the LTV Steel bankruptcy, in which bankruptcy remoteness was successfully challenged. We find that ABS spreads for Chapter 11—eligible securitizers increased significantly more than spreads for Chapter 11-ineligible securitizers following LTV. (JEL G32, G33, K29)