First, his article relies entirely on a database known as the “UCLA – LoPucki Bankruptcy Research Database” which purports to hold data regarding every publicly traded company that filed for bankruptcy since 1980 (Wood article p. 431). Unfortunately, that database is essentially useless on the subject of creditor recoveries.
I was able to check the cases listed by Wood because, being quite recent, the cases were all available on PACER. But, the disclosure statements or other documents relevant to recovery information in the 1991-96 cases cited in the LoPucki study are generally not available on PACER and cannot be checked nearly as easily. Yet, the extent of error that I shall show in Wood’s tabulations of 2009-10 cases has to throw his (or LoPoucki’s) calculations of 1991-96 recoveries into question: how reliable can their calculations of older cases be when their calculations of the more recent era is often wrong?
There is no basis to believe they got one era right and the other era wrong. Rather, because of the pervasiveness of the errors in Wood’s analysis of 2009-10 cases, not only should the recovery percentages for that era that Wood derived be disregarded, but likewise the “77%” recovery figure attributed to the earlier cases has to be regarded as unreliable. Neither figure can be used as a basis for comparison when each is derived from such a poorly maintained database and the author(s) have failed to show how they derived either figure.
After reviewing the database errors, I will go on to show in my fourth post that the difference in recoveries between the two samples is partly a misleading artifact that arises from the methodological error of comparing two mismatched samples. First, the 1991-96 time period was a 6-year bull market with an IRR of approximately 18%. The 2009-10 time period was a 2-year bull market with an IRR also of approximately 18%. Because Wood took simple averages of both samples, and valuations increased for a much longer time over the earlier sample, simple arithmetic should make the earlier sample’s average a higher number. There were no legal or structural or policy factors at work.
I have also posted a sixth essay identifying three further questionable aspects of the Wood/LoPucki analysis: disregard of post-petition interest; calculating average recoveries on a case-weighted basis as opposed to claim weighted basis; and relying exclusively on disclosure-statement estimates of recoveries instead of considering post-emergence appreciation, which was in some cases significant. .
I updated this on June 29 to provide the links to the later posts and to include a link to the sixth essay.