Publications
Publications
- 2024
Creditor-on-Creditor Violence and Secured Debt Dynamics
By: Samuel Antill, Neng Wang and Zhaoli Jiang
Abstract
Anticipating a borrower's default, secured lenders have recently used aggressive legal tactics to extract value from other secured lenders. We model the implications of this new "creditor-on-creditor violence'' trend. In our novel continuous-time capital structure model, secured debt enjoys higher priority in default. However, secured lenders take harmful actions to ensure their full recovery: they inefficiently push to prematurely sell assets and strip competing lenders of their priority. We show this creates a tradeoff between secured and unsecured debt that matches recent empirical evidence. While the creditor-conflict trend endogenously leads to higher secured credit spreads, it nonetheless increases investment and ex-ante firm value --- creditor conflict enables ex-post debt reductions in states of the world with high expected default costs.
Keywords
Citation
Antill, Samuel, Neng Wang, and Zhaoli Jiang. "Creditor-on-Creditor Violence and Secured Debt Dynamics." Working Paper, May 2024.