Market Valuation of Illiquid Debt and Implications for Conflicts among Creditors

Leonardo Bartolini and Avinash Dixit

IMF Staff Papers, 1991, vol. 38, issue 4, 828-849

Abstract: We develop a formula for the market value of debt when the borrower's repayment capacity varies stochastically and shortfalls are rolled over. The value of a marginal dollar of nominal claim is an S-shaped function of the ratio of the repayment capacity to the amount of nominal debt. Shifts of this curve are examined in response to changes in the underlying parameters. The calculations bring out conflicts of interest among lenders of differing degrees of seniority. Most surprisingly, junior creditors gain when the loan is rescheduled on terms more favorable to the debtor.

JEL-codes: F34 G32 (search for similar items in EconPapers)
Date: 1991
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.jstor.org/stable/3867126?origin=pubexport main text (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Market Valuation of Illiquid Debt and Implications for Conflicts Among Creditors (1990)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfstp:v:38:y:1991:i:4:p:828-849

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Staff Papers from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().