When firms emerge from Chapter 11 bankruptcy of the US Bankruptcy Code, independent experts are used to estimate market values for all net assets. Unusually all previous accounting valuations are cancelled and replaced with these updated synthetic market value estimates in order to give the firm a fresh start. Lehavy (Review of Accounting Studies 7, 53-73, 2002), finds that stock market participants react by on average marking up such emerging stocks by four percent. For our sample we find a similar first day reaction but go further and show that a post emergence announcement drift exists and that critically the magnitude of the emergence drift depends on the presence of vulture funds on the firms debt register during Chapter 11. We explain how the drift arises because of fundamental asymmetries of information that arise during the court controlled Chapter 11 process. We find evidence to support the hypothesis that the presence of vulture funds on the debt register makes it more likely that firm values are subject to whiplash – values being driven down during Chapter 11 by independent experts only for them to shortly be driven up by actual market trading. We explain how this maximizes returns to a vulture fund trading strategy of loan to own

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financial distress, bankruptcy, debt trading, market values