Debt Valuation and Chapter 22

Adriana Breccia and William Perraudin
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Adriana Breccia: Department of Economics, Mathematics & Statistics, Birkbeck

No 1015, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: Numerous studies have examined the effect on credit spreads of renegotiation. These studies have generally focused on the impact on spread levels in general, and not on how renegotiation influences the relative pricing of senior versus junior debt claims. In this paper, we show that the scope for sequential renegotiation may reduce and even eliminate the premium for debt seniority. Our analysis also explains why companies may engage in repeated Chapter 11 bankruptcy filings (a phenomenon commonly referred to as Chapter 22).

Date: 2010-11
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https://eprints.bbk.ac.uk/id/eprint/7524 First version, 2010 (application/pdf)

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