Data Supplement for Bankruptcy & Antitrust: Deviations from Absolute Priority, Incomplete Renegotiations & Conflicts with Competition Laws

Concerns about the concentration of market power in the hands of a few firms have long underpinned antitrust law. The laissez faire antitrust attitudes are increasingly giving way to stricter enforcement actions. This Article argues that this renewed push should not make the same mistake as its predecessors and must scrutinize the bankruptcy system given that, as illustrated here, there is an empirical relation between bankruptcy volume and market concentration driven by two factors. First, the bankruptcy system creates noise in debt pricing with a disproportionate impact on new and smaller competitors. Two trends likely drive this noise: unpredictable departures from the absolute priority system and the cliff in the relationship between creditors and debtors created by the collision between the Trust Indenture Act and the Bankruptcy Code. Second, bankruptcy considerations often come into conflict with antitrust laws to benefit incumbents. The Failing Company defense and its outgrowths are bankruptcy-driven escape hatches from antitrust scrutiny. Furthermore, antitrust enforcement has been neglected in the face of concerns about the stability of certain sectors and incumbents. These have turned bankruptcy courts into inhospitable venues for antitrust claims and have allowed creditors to reap monopolistic profits. Two reforms address these tensions. First, bankruptcy courts should be subject to more rigorous appellate review through underutilized Bankruptcy Appellate Panels. Second, the Trust Indenture Act should be amended to eliminate its tension with the Bankruptcy Code by allowing bondholders to amend all terms of a bond without entering bankruptcy as long as they do not move ahead in the bankruptcy “queue.”