Booth Students Take First Prize with Paper on Restructuring

Two Booth students who detected a shift away from traditional outcomes in the restructuring world recorded their findings in a paper that won a first prize from the Turnaround Management Association on October 7.

“The work on the paper has shown me the rich complexity and drama, rivaling a Lyric Opera production, of the modern corporate restructuring,” said Nikhil Abraham, a second-year student in the Full-Time MBA Program and JD program. Abraham researched and coauthored the paper with Aditya Habbu, MBA ’10, JD ’10.

Their paper, “The Death of Emergence: Reorganization Outcomes Post-Crisis,” won first prize in the theoretical category in the TMA’s Carl Marks Student Paper Competition.Abraham and Habbu share a $3,000 award. Earlier the two had won a $5,000 grant from TMA’s Chicago chapter to research the paper.

The students sought to gain a better understanding of the debtor-in-possession (DIP) lending process.

“Commentators have long debated whether debtor-in-possession financing destroys value by overinvesting in negative net-present-value projects, or whether it creates value by increasing the probability that the bankrupt company emerges as a standalone company,” Abraham said. “Our research focused on whether the recent financial crisis informed this debate. We found that while DIP financing was traditionally a path to emergence, after the crisis it served as a path to sale, with more companies being sold through the bankruptcy process than emerging.”

To come to this conclusion, Abraham and Habbu examined debtor-in-possession lending documents and constructed a complicated statistical analysis. To create qualitative predictions they also interviewed two prominent federal bankruptcy judges, professors, a DIP lender, and a restructuring-investment banking practitioner.

“We tried to apply many of the tools we had learned at Chicago Booth and the Law School,” Abraham said.

Habbu said their strategy resonated with the judges. “I think our paper was not only rigorous, it was comprehensive,” he said. “Not only did we do quantitative analysis, we used qualitative analysis from reliable sources to ensure we were going in the right direction. I think our finished product had a strong thesis that was well researched and well justified.”

Both students were interested in exploring careers in restructuring, particularly after taking a bankruptcy class. “I thought we would make a great team and we both wanted to apply some of the concepts we had learned,” Abraham said. He said he first learned about the TMA Chicago chapter’s research grant at the Private Equity Conference.

Habbu said, “This seemed like a great opportunity to team up with the TMA, network with restructuring professionals, and study the consequences of the recession on the restructuring industry in more detail. So we jumped at the opportunity.”

The paper has helped both students to secure additional opportunities. Habbu will be teaching a class as adjunct faculty at Fordham Law School next semester. The class is called, “Bankruptcy Valuation, Hedge Fund Participation, and Modern Trends in Restructuring Litigation.”

Abraham was able to obtain a research assistant job at the Committee on Capital Markets Regulation, a research organization at Harvard Law School. He also received a grant from the Ewing Marion Kauffman Foundation to write about entrepreneurship.

— Mary Sue Penn