Debt Restructuring: When Do Loan and Bond Prepayments Pay Off?

Fischer, Edwin O.; Wöckl, Ines

doi:10.2139/ssrn.3225608

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2023

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“…In this paper, we assume that the firm decides on the structure of its debt portfolio at + = 0 and does not alter its composition until maturity. However, as Fischer and Wöckl (2019) suggest, it is meaningful for firms to evaluate the potential prepayment of existing debt instrument and refinance into new loans or bonds in order to take advantage of changes in the interest rate environment. The incorporation of such an evaluation into the models proposed here would require the departure from our assumption of a constant interest rate.…”

Section: Summary and Concluding Remarksmentioning

confidence: 99%

On the Valuation and Analysis of Risky Debt: A Theoretical Approach Using a Multivariate Extension of the Merton Model

Fischer,

Kampl,

Woeckl

2023

CCM

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We contribute to the literature on the valuation of risky debt by providing three nested multivariate extensions of the standard Merton model. First, we lay forth an approach to pricing risky debt irrespective of its interest payment structure and the specified redemption agreement. Second, we propose a technique for valuing multiple debt instruments within the same firm. Third, we provide an approach for pricing one or more debt instruments with continuous dividend payments.

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Section: Summary and Concluding Remarksmentioning

confidence: 99%