
Why Do Bankrupt Firms Have Such Complex Capital Structures?
Complex capital structures are prevalent in many recent high-profile Chapter 11 bankruptcy cases. One recent example is Toys ‘R’ Us, whose debt structure was, as characterized by Bloomberg Businessweek, “as complex and precarious as a Jenga tower. [1]” It included dozens of subsidiary entities, with separate debt facilities against entities owning the intellectual property, the real estate, and international operations, among other asset groups. Why do capital structures become fragmented and complex in this way, and what are the implications for bankruptcy law?
In my working paper, Disagreement and Capital Structure Complexity, I suggest one reason why a firm’s … Read more