Repurchasing Debt

37 Pages Posted: 25 Jan 2012 Last revised: 26 Dec 2019

See all articles by Lei Mao

Lei Mao

The Chinese University of Hong Kong, Shenzhen

Yuri Tserlukevich

Arizona State University (ASU)

Date Written: January 14, 2014


In this paper we build a theoretical model of a firm repurchasing its corporate debt. We find that firm creditors as a group sell debt to the firm only at face value. However, because of the cross-creditor externalities buying back debt is cheaper and easier when there are many creditors, e.g., when debt is traded on the open market. We further show that repurchases contribute to flexibility in firms' capital structure and can increase ex-ante firm value. The value of repurchases to the shareholders increases with the firm's ability to save cash and delay the repurchase.

Keywords: Savings, Debt Repurchase, Debt Overhang

JEL Classification: G32

Suggested Citation

Mao, Lei and Tserlukevich, Yuri, Repurchasing Debt (January 14, 2014). WBS Finance Group Research Paper No. 171, Available at SSRN: or

Lei Mao

The Chinese University of Hong Kong, Shenzhen ( email )

Yuri Tserlukevich (Contact Author)

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

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