Admissible Designs of Debt-Equity Swaps for Distressed Firms: Analysis, Limits and Applications

Franck Moraux () and Patrick Navatte

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Abstract: This paper reconsiders the design of debt-equity swaps that are common tools tofinancially restructure distressed firms. While an ad hoc approach consists incharacterizing a set of three parameters, we demonstrate that a system of twoequations defines admissible designs. Hence, assuming that creditors do not want tobankrupt the firm nor they want to evict completely current equity holders, we solvethe debt holders' design problem. We then undertake an in-depth analysis ofcorresponding solutions and we show that debt-equity swaps can significantlyincrease the probability of being reimbursed of the remaining due payment inthe next future.

Keywords: Contingent Claim Analysis; Debt Equity Swap; Design (search for similar items in EconPapers)
Date: 2007-12
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Published in Congrès International de Finance, Dec 2007, France. 23 p

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00257915

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