9.3. AN EQUILIBRIUM MODEL OF BANKRUPTCY 2 will not sell for less than u2 but class 1 cannot afford to buy all the stock at a price greater than or equal to u2. Thus, the price on the secondary market must be V= U2 and class l will purchase a fraction of the equity of the firm. Class 2 holds the remainder, i.e., 1=a Suppose that the opening of the secondary market had been anticipated when the bids for the firm were being made. Would that have made any difference? Suppose that the bankruptcy procedure outlined above did not allow for non-cash bids? What would an equilibrium look like? Would the outcome be efficient? One possibility is that only cash bids are recognized during the allocation process, but all proceeds are distributed ex post according to the standard procedure. In effect there is a credit constraint that prevents creditors from using anticipated receipts in order to bid for equit Suppose that re-contracting is allowed, i.e there is a second round of bidding once the proceeds of the liquidation or re-organization have been distributed. Does this guarantee efficiency? What effect would the antici- pated second round have on the first-round bidding? Are all procedures equivalent with re-contracting? An important assumption in this model is that all valuations are common knowledge(except to the receiver ). Would asymmetric information provide a rationale for the ahm-bebchuk scheme?9.3. AN EQUILIBRIUM MODEL OF BANKRUPTCY 9 2 will not sell for less than v2 but class 1 cannot afford to buy all the stock at a price greater than or equal to v2. Thus, the price on the secondary market must be V 0 = v2 and class 1 will purchase a fraction α = V V 0 = w2 v2 of the equity of the firm. Class 2 holds the remainder, i.e., 1 = α. Suppose that the opening of the secondary market had been anticipated when the bids for the firm were being made. Would that have made any difference? Suppose that the bankruptcy procedure outlined above did not allow for non-cash bids? What would an equilibrium look like? Would the outcome be efficient? One possibility is that only cash bids are recognized during the allocation process, but all proceeds are distributed ex post according to the standard procedure. In effect there is a credit constraint that prevents creditors from using anticipated receipts in order to bid for equity. Suppose that re-contracting is allowed, i.e., there is a second round of bidding once the proceeds of the liquidation or re-organization have been distributed. Does this guarantee efficiency? What effect would the antici￾pated second round have on the first-round bidding? Are all procedures equivalent with re-contracting? An important assumption in this model is that all valuations are common knowledge (except to the receiver). Would asymmetric information provide a rationale for the AHM-Bebchuk scheme?