Critical Finance Review > Vol 9 > Issue 1-2

Repo Priority Right and the Bankruptcy Code

Jun Kyung Auh, Yonsei University, South Korea, , Suresh Sundaresan, Columbia Business School, USA,
Suggested Citation
Jun Kyung Auh and Suresh Sundaresan (2020), "Repo Priority Right and the Bankruptcy Code", Critical Finance Review: Vol. 9: No. 1-2, pp 77-114.

Publication Date: 11 Jun 2020
© 2020 Jun Kyung Auh and Suresh Sundaresan
Bankruptcy codeSuper seniorityMaturity structure


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In this article:
1. Introduction 
2. Related Literature 
3. Empirical Motivation From the 1984 Bankruptcy Reform 
4. Bankruptcy Code and Safe Harbor Debt 
5. Optimal Restructuring and Liability Structure 
6. Asset Liquidity 
7. Conclusion 
Appendix: Proofs 


This paper shows that when the bankruptcy code protects the creditors’ rights with no impairments to secured creditors, issuance of debt such as repo with exemption from automatic stay adds no value. When the bankruptcy process admits violations of absolute priority rules or results in collateral impairments to secured creditors, the liability structure includes short-term debt, with safe harbor protection when the pledged collateral satisfies a minimum liquidity threshold. Safe harbor rights lead firms to issue more short-term debt, less long-term debt and increase the long-term spreads.