Default and Turnaround Valuation: How Do Investors Price a Crisis?

Roberto Moro-Visconti ()
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Roberto Moro-Visconti: Catholic University of the Sacred Heart

Chapter Chapter 10 in Augmented Corporate Valuation, 2026, pp 455-495 from Springer

Abstract: Abstract This chapter provides a toolkit for valuing financially distressed companies when failure risk is central rather than peripheral. It contrasts two coherent approaches—survival-weighted discounted cash flow and adjusted present value—and warns against double-counting distress. The method builds survival curves from hazard rates tied to observable drivers (liquidity, covenants, refinancing), and couples a liquidity view with longer-term normalization. It constructs recovery values under a going-concern reorganization versus liquidation. It then allocates value via a priority waterfall to identify the fulcrum class, validates terminal assumptions against sustainable economic principles, and explains why intangibles collapse in liquidation.

Keywords: Survival probabilities; Hazard rates; Recovery analysis; Capital-structure waterfall; Fulcrum security (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-032-17903-6_10

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DOI: 10.1007/978-3-032-17903-6_10

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