The Chrysler Effect : The Impact of the Chrysler Bailout on Borrowing Costs

The Chrysler Effect : The Impact of the Chrysler Bailout on Borrowing Costs

Did the U.S. government's intervention in the Chrysler reorganization overturn bankruptcy law? Critics argue that the government-sponsored reorganization impermissibly elevated claims of the auto union over those of Chrysler's other credi...

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Bibliographic Details
Main Authors:	Anginer, Deniz, Warburton, A. Joseph
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ABSOLUTE PRIORITY RULE ACCOUNTING ASSET SALE ASSETS BAILOUT BAILOUTS BALANCE SHEET BANK MARKET BANKRUPT BANKRUPTCIES BANKRUPTCY BANKRUPTCY CODE BANKRUPTCY COURT BANKRUPTCY ESTATE BANKRUPTCY LAW BANKRUPTCY LAWS BANKRUPTCY PRIORITIES BANKRUPTCY PRIORITY BANKRUPTCY PROCEEDINGS BANKRUPTCY PROCESS BANKRUPTCY PROTECTION BANKRUPTCY REORGANIZATION BANKRUPTCY RESOLUTION BANKRUPTCY SYSTEM BARGAINING POWER BENEFICIARY BOND BOND INVESTORS BOND MARKET BOND MARKETS BOND PRICES BOND RETURNS BOND SPREAD BOND YIELDS BONDHOLDER BONDHOLDERS BORROWING COSTS BRIDGE LOAN CAPITAL FLOWS CAPITAL MARKETS CDS CLAIMANTS CLASS OF CLAIMS CLASSES OF CREDITORS CLEAN PRICE COLLATERAL COLLECTIVE BARGAINING COLLECTIVE BARGAINING AGREEMENT COMMERCIAL LAW CONCESSIONS CONCESSIONS FROM CREDITORS CONSUMER PRICE INDEX CONVERTIBLE BONDS CORPORATE BOND CORPORATE BOND INDICES CORPORATE BOND TRANSACTIONS CORPORATE BONDS CORPORATE DEBT CORPORATE DEBTORS CORPORATE INVESTMENT CORPORATE YIELDS COST OF CAPITAL COST OF DEBT COUPON COUPON PAYMENT COUPON PAYMENTS COURT DECISIONS CREDIT ENHANCEMENTS CREDIT MARKET CREDIT MARKETS CREDIT RATING CREDIT RISK CREDIT SPREAD CREDITOR CREDITOR CLAIMS CREDITOR CLASS CREDITOR PRIORITIES CREDITORS DEBENTURE DEBT DEBT BURDEN DEBT FINANCING DEBT HOLDERS DEBT MARKET DEBT MARKET PARTICIPANTS DEBTOR DEBTORS DEFAULT PREMIUM DEFAULT PROBABILITY DEFAULT RISK DEPOSIT DEPOSIT INSURANCE DERIVATIVE DISTRESSED DEBT DISTRESSED SECURITIES DUMMY VARIABLE ECONOMIC RECESSION EMPLOYEE BENEFIT EMPLOYEE RETIREMENT EQUITABLE TREATMENT EQUITY HOLDERS EQUITY STAKE ESTATE ESTATES EXCHANGE COMMISSION FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL SHOCK FINANCIAL STUDIES FIRMS IN REORGANIZATION FIXED INCOME FIXED INCOME SECURITY FLOATING INTEREST RATES FORECLOSURES FULL REPAYMENT FUND MANAGERS GOVERNMENT BAILOUT GOVERNMENT BAILOUTS GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GOVERNMENT INVOLVEMENT GOVERNMENT POLICIES GOVERNMENT REGULATION GOVERNMENT SUPPORT GROUPS OF CREDITORS HIGH YIELD BONDS HIGH-YIELD BONDS HOLDING IMPLICIT GOVERNMENT GUARANTEE IMPLICIT GUARANTEE INDEBTED INDEBTEDNESS INDIVIDUAL BOND INSOLVENCY INSURANCE INSURANCE POLICY INTANGIBLE INTERNATIONAL BANK INVESTMENT DECISIONS JUNIOR CREDITORS LABOR FORCE LABOR UNION LABOR UNIONS LENDER OF LAST RESORT LENDERS LEVERAGE LIEN LIENS LIQUIDATION LIQUIDITY LLC LOAN MARKET BEHAVIOR MARKET CAPITALIZATION MARKET DEVELOPMENT MARKET DISCIPLINE MARKET FOR BONDS MARKET PLAYERS MARKET RISK MARKET TRANSPARENCY MARKET VALUE MARKET VALUES MATURITIES MATURITY MERGERS MORAL HAZARD NEGOTIATION NEGOTIATIONS NONPAYMENT OWNERSHIP INTERESTS PENSION PENSION FUNDS POLITICAL CONSIDERATIONS PORTFOLIO POSSESSION POSSESSION FINANCING POST-PETITION FINANCING PRIORITY CLAIM PRIORITY CLAIMS PRIORITY DEBT PRIVATE LENDER PRIVATE SECTOR DEVELOPMENT REORGANIZATION REORGANIZATION PROCESS REORGANIZATIONS REPAYMENT RESTRUCTURING PLAN RETIREMENT INCOME SECURITY RETURN RETURNS RETURNS ON BONDS RISK ASSESSMENTS RISK FACTORS RISKY DEBT RULE OF BANKRUPTCY RULE OF LAW SALE DOCUMENTS SECONDARY MARKET SECURITIES SECURITY INTEREST SECURITY INTERESTS SETTLEMENT SETTLEMENTS STOCK MARKET STOCK MARKETS STOCK RETURN STOCK RETURNS STOCKS TAX TRADE CREDITORS TRADING TRADING COSTS TRADING MARKETS TRANSACTION TREASURIES TREASURY TREASURY BONDS TREASURY YIELD UNSECURED CLAIM UNSECURED CLAIMS UNSECURED CREDITOR UNSECURED CREDITORS UNSECURED DEBT UNSECURED OBLIGATIONS VALUATION WARRANTS WEALTH EFFECTS YIELD CURVE YIELDS ON BONDS
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101028130336 http://hdl.handle.net/10986/3943

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Summary:	Did the U.S. government's intervention in the Chrysler reorganization overturn bankruptcy law? Critics argue that the government-sponsored reorganization impermissibly elevated claims of the auto union over those of Chrysler's other creditors. If the critics are correct, businesses might suffer an increase in their cost of debt because creditors will perceive a new risk, that organized labor might leap-frog them in bankruptcy. This paper examines the financial market where this effect would be most detectible, the market for bonds of highly unionized companies. The authors find no evidence of a negative reaction to the Chrysler bailout by bondholders of unionized firms. They thus reject the notion that investors perceived a distortion of bankruptcy priorities. To the contrary, bondholders of unionized firms reacted positively to the Chrysler bailout. This evidence suggests that bondholders interpreted the Chrysler bailout as a signal that the government will stand behind unionized firms. The results are consistent with the notion that too-big-to-fail government policies generate moral hazard in the credit markets.