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The firm value in case of deleveraging using leasing and the optimal restructuring level

Elsayed Elsiefy and Moustafa Ahmed AbdElaal

The Quarterly Review of Economics and Finance, 2019, vol. 72, issue C, 145-151

Abstract: When the firm falls in the financial distress it, has several difficult solutions, e.g., buy back its debt or the bankruptcy. Some firms finance purchasing its debt via issuing a new equity or selling part of its assets. In this paper, we investigated deleveraging via sell part of the firms’ assets and then lease it back. We present a model for calculating the firm’s assets value in restructure threshold and the optimal restructuring level after considering the leased assets value. We illustrated how the continuous decreasing in the firm’s assets value does not forbid the restructuring. On contrary, when a firm’s asset value decline the cost of restructuring decrease. Finally, we concluded the negative relationship between the percentages of loss due to the restructuring and the optimal firms’ assets value at the restructuring.

Keywords: Deleverage; Lease; Restructure (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:quaeco:v:72:y:2019:i:c:p:145-151