Bank Loan Maturity and Priority when Borrowers can Refinance
This paper describes a theory of how borrowers with private information about their future credit prospects choose seniority and maturity of bank loans and publicly issued bonds. The model implies that short-term bank loans will be senior to public long- term debt. With sufficient public debt, banks will not make concessions when restructuring their debt in response to a borrower's financial distress. Recent evidence on the debt restructuring activities of banks is interpreted in the context of the model.
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|Date of creation:||Oct 1992|
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