Repeated Dilution of Diffusely Held Debt

Ulrich Hege and Pierre Mella-Barral

Post-Print from HAL

Abstract: Debt with many creditors is analyzed in a continuous‐time pricing model of the levered firm with opportunistic renegotiation offers and default threats. Dispersed creditors accept coupon concessions only in exchange for guaranteed liquidation rights, like collateral. In the ex ante optimal debt contract, this security is provided by assets that gradually become worthless as the firm approaches the preferred liquidation conditions. Dispersed debt offers larger debt capacity than single‐creditor debt and is preferable if the ex ante value of collateralizable assets is sufficiently low. Our model explains credit risk premia in excess of those supported by a single creditor with opportunistic renegotiation.

Keywords: Debt Reorganization; Multiple Creditors; Priority of Claims; Debt Pricing (search for similar items in EconPapers)
Date: 2005-05
References: Add references at CitEc
Citations: View citations in EconPapers (35)

Published in Journal of Business, 2005, Vol.78,n°3, pp.737-787. ⟨10.1086/429643⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Repeated Dilution of Diffusely Held Debt (2005)
Working Paper: Repeated dilution of diffusely held debt (2002)
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:hal:journl:hal-00459921

DOI: 10.1086/429643

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().