This paper is very bloggable

The US Government’s intervention in Chrysler LLC’s bankruptcy resulted in secured creditors receiving substantially less than the face value of their claims. In contrast, an unsecured creditor, the UAW, received substantial cash, notes, and equity in exchange for their claims. In this study, we examine the capital market consequences of the Government’s action in the Chrysler bankruptcy. Using several alternative measures of the cost of debt, including changes in spreads on new loans, bond returns, stock returns, and changes in credit default swap spreads, we provide evidence consistent with an increase in borrowing costs for firms that are seen to have weakened creditor rights as a result of the precedent set in the Chrysler bankruptcy. Our findings underscore the potential costs of government actions that increase uncertainty about the enforcement of creditor rights.

The authors are Bradley S. Blaylock, Alexander S. Edwards, and Jared R. Stanfield. The title: Creditor Rights and Government Intervention (January 2012).