The University of Chicago Law School has long been established as a leader in producing influential and breakthrough legal scholarship. But Chicago Law faculty members aren’t the only contributors.
The Law School encourages students to develop their ideas into academic papers that have been entered into competitions and presented at conferences, sometimes with great success. Two University of Chicago JD/MBA students’ scholarship on bankruptcy law was recently honored with a national award for paper they wrote about debtor-in-possession financing and the credit crisis.
Nikhil Abraham, ’11, and Aditya Habbu, ’10, were recognized by Turnaround Management Association (TMA) in the nonprofit’s 2010 Carl Marks Student Paper Competition. Their paper, “The Death of Emergence,” documented a new trend in bankruptcy lending in light of the financial crisis, specifically, that senior lenders of debtor-in-possession (DIP) loans are more often seeking sales of businesses than bankruptcy emergence. Habbu and Abraham were students together in the University of Chicago’s JD/MBA program when they wrote “The Death of Emergence.” Abraham had been working under the Law School’s Olin Student Fellowship, which he credits, along with the Law and Economics Workshop, for building his confidence to apply for the competition. This school year, Abraham was awarded the Law School’s Kauffman Fellowship to write a paper on venture capital and entrepreneurship.
“With the Kaufman and the Olin, and the faculty support that goes into each of those fellowships, the Law School has been phenomenal in creating an environment that helps students become scholars, contributing to the discussion at a high level,” he said. “Participating in the workshop and seeing faculty critique scholarly papers helped us write a better paper.”
The Olin and Kauffman fellowships are two of three fellowships that support students in academic scholarship. Olin Fellowships are awarded to two students in law and economics research, while Kauffman Fellowships, funded by the Ewing Marion Kauffman Foundation, are awarded to two students researching entrepreneurship. The Lynde and Harry Bradley Student Fellowships supported five students last year in the study of limited government in a legal regime that fosters a dynamic marketplace for economic, intellectual, and cultural activity.
In addition to the fellowships, Law School professors play a big role in encouraging student scholarship. Professor Douglas Baird, the Harry A. Bigelow Distinguished Service Professor of Law, advised Abraham and Habbu during their research and writing process, acting as a cross between a sounding board and a cheerleader. The best way, generally, to help students pursue scholarship is to include them in classroom conversations and the workshops that benefited these two so much, Baird said.
“Working with students on their papers is something of a balancing act,” he said. “On one hand, you want to help them identify big and important issues. On the other hand, the thrill and fun of doing scholarship is lost unless the ideas and insights are your own. In the case of Nik and Adi, we had a number of initial conversations about the question and the various strategies they might use to approach it, but the heavy lifting was, as it should have been, entirely their own.”
The two used a $5,000 grant from TMA’s Chicago chapter to write the paper and tailored it for entry in the national student competition. TMA, an international nonprofit dedicated to corporate renewal and turnaround management, selected the students’ paper as the best in the theoretical/conceptual category, a prize that came with a $3,000 award. Students in the University of Chicago’s Booth School of Business have placed twice in the competition in the past, including a first-place win in 2005. However, Abraham and Habbu are the first Chicago Law students to be recognized.
“The grant money from TMA made this possible,” Habbu said. “It is vital that law and business students keep applying for this money and entering this contest.” Baird said the two selected a timely topic to explore, given the dramatic increase in the number of cases in which a company files for Chapter 11 bankruptcy in order to sell its assets rather than reorganize. Questions abound over why this shift occurred, and Abraham and Habbu chose to approach the debate empirically.
In researching the paper, the two spent months collecting DIP lending data through news sources, DIP databases, court filings, and Lexis andWestlaw. Then they painstakingly coded each variable of the data in order to run statistical/regression analysis. “It took hours and days to run all this analysis then recheck it,” Habbu said. “Professor Baird provided fantastic insight along the way to ensure our data was saying what we thought it was saying.”
“Even after we found a generalized database, we spent time reviewing the original court documents to understand how the interest rate and other loan features were structured,” Abraham said.
Their research uncovered a significant difference between bankruptcy successes and failures before and after the credit crisis for those debtors that sought DIP loans. Those businesses were less likely to emerge from bankruptcy— and were more likely to be sold—in a post-crisis world.
As they wrote in “The Death of Emergence”: “Companies who can obtain a DIP loan in these turbulent economic times are the most likely to be strong companies who are merely suffering from an overly onerous debt load. If even these companies are no longer heading towards emergence, we believe this is strong evidence that emergence is no longer the end goal of the bankruptcy process.”
The findings, Baird said, “document a significant change in lending practices in the wake of the financial crisis showing that senior lenders, particularly hedge funds as opposed to traditional banks, were using DIP lending as a lever of control to push for early sales.”
After graduating in June, Habbu left Chicago to clerk for Judge Robert E. Gerber in US Bankruptcy Court for the Southern District of New York, but he also found an opportunity to share with others some of what he learned while researching the paper. In the spring, he was an adjunct professor at Fordham Law School teaching Bankruptcy Valuation, Hedge Fund Participation, and Modern Trends in Restructuring Litigation, a course that combines the valuation skills he learned at the Booth School of Business with the legal skills of the Law School.
“It would clearly not have been possible for me to design and be allowed to teach such a course if not for the incredible education I received from both the Law School and Booth programs,” he said.