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

Author

Listed:
  • Franck Moraux

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Patrick Navatte

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Franck Moraux & Patrick Navatte, 2007. "Admissible Designs of Debt-Equity Swaps for Distressed Firms: Analysis, Limits and Applications," Post-Print halshs-00257915, HAL.
    • Handle: RePEc:hal:journl:halshs-00257915
    as

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