Capital structure and debt priority

Sami Attaoui and Patrice Poncet
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Patrice Poncet: ESSEC Business School

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Abstract: In a simple structural model, we derive closed form solutions for the market values of a defaultable firm's debt and equity when debt has a heterogeneous priority structure - under the form of senior and junior bonds - and the absolute priority rule prevails. The firm is subject to liquidity and solvency risks and liquidation is immediate upon bankruptcy. We investigate the two-sided issue of optimal capital structure and optimal debt priority. We also examine the spread differential between senior and junior bonds

Keywords: Capital structure; Debt priority structure; Liquidation; Default probability; Credit spread (search for similar items in EconPapers)
Date: 2011-12-20
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Published in AFFI 9th International Paris Finance Meeting, Dec 2011, Paris, France. 44 p

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Related works:
Journal Article: Capital Structure and Debt Priority (2013)
Working Paper: Capital structure and debt priority (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00756211

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