Debt Renegotiation and the Design of Financial Contracts
49 Pages Posted: 15 Jan 2016
Date Written: January 13, 2016
I study the impact of bank loan renegotiation on the design of financial contracts. Debt renegotiation can be beneficial for borrowers and lenders but its impact on the design of financial contracts is less clear. However, contract design is crucial for borrower’s investment, operating and financing policies. I find that the design of renegotiated credit agreements is not homogenous. Main renegotiation packages contain amendments to loan amount and maturity. I show that secured loans with longer maturities experience broader amendments. Creditors’ friendly environment and the presence of reputable, sound, and profitable lenders have a similar effect.
Keywords: financial contracts design, bank loans, debt renegotiation.
JEL Classification: G10, G21, G24.
Suggested Citation: Suggested Citation