Debt Renegotiation

23 Pages Posted: 5 Nov 2012

See all articles by Franck Moraux

Franck Moraux

Université de Rennes I and CREM

Florina Silaghi

Autonomous University of Barcelona

Date Written: June 6, 2012


This paper develops a new model of debt renegotiation in a structural framework, that accounts for both taxes and bankruptcy costs. We investigate situations where the manager can optimally (on behalf of the equity holder) impose a permanent coupon reduction to creditors, given that the new coupon is chosen such that debt value remains constant. Our result shows that the manager designs the offer as a “take it or leave it” offer and that one can increase the financial value of the firm without hurting the creditors. This model of debt renegotiation can be viewed as a way of passing from a junk bond to an investment grade bond.

Keywords: Debt renegotiation, Debt pricing

JEL Classification: G30, G32, G33, G13

Suggested Citation

Moraux, Franck and Silaghi, Florina, Debt Renegotiation (June 6, 2012). 29th International Conference of the French Finance Association (AFFI) 2012, Available at SSRN: or

Franck Moraux (Contact Author)

Université de Rennes I and CREM ( email )

IAE de Rennes
11, rue Jean Macé
Rennes, 35000
+33 (0)2 23 23 78 08 (Phone)
+33 (0)2 23 23 78 00 (Fax)


Florina Silaghi

Autonomous University of Barcelona ( email )

Business Department
Bellaterra, Barcelona 08193

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