Debt and Hybrid Decoupling: An Overview

Abstract

This is a summary, practitioner-oriented article which summarizes our research on debt and hybrid decoupling. Equity decoupling refers to the unbundling of the rights and obligations normally associated with shares. Debt decoupling refers to the unbundling of the economic and governance rights normally associated with debt, often through credit derivatives or securitization. Hybrid decoupling involves combined debt and equity positions. All forms appear to be growing in importance. Debt and hybrid decoupling pose risks for debt governance - the relationship between creditors and debtors, including creditors' exercise of their contractual and legal governance rights. Widespread debt decoupling can also involve externalities and contribute to systemic financial risks.

The full academic version of this Article is Debt, Equity, and Hybrid Decoupling, European Financial Management, vol. 14, forthcoming 2008, available at http://ssrn.com/abstract=1084075

For an earlier, finance-oriented academic article on equity decoupling, see:

Hedge Funds, Insiders, and the Decoupling of Economic and Voting Ownership: Empty Voting and Hidden (Morphable) Ownership, , Journal of Corporate Finance, Vol. 13, 2007, pp. 343-367, nearly final version available at http://ssrn.com/abstract=874098

For our principal law-oriented academic articles on equity and debt decoupling, see:

Equity and Debt Decoupling and Empty Voting II: Importance and Extensions, University of Pennsylvania Law Review, Vol. 156, 2008, pp. 625-739, available at http://ssrn.com/abstract=1030721

The New Vote Buying: Empty Voting and Hidden Ownership, Southern California Law Review, Vol. 79, 2006, pp. 811-908, available at http://ssrn.com/abstract=904004

Keywords: corporate governance, derivatives, equity swaps, hedge funds, shareholder voting, vote buying

JEL Classification: G14, G18, G20, G24, G28, G30, G32, G34, K22, L20