Valuation of Menu Items in Debt Restructuring
16 Pages Posted: 15 Feb 2006
Date Written: September 8, 1989
This paper outlines a procedure for calculating the cash value of "menu items" in debt restructuring proposals, including par and non-par exchanges, with enhancements consisting of either interest or principal guarantees. It is argued that under certain plausible assumptions interest and principal guarantees are directly equivalent to cash buy-backs. Using these assumptions, formulas to calculate the exchange ratios, resource requirements, interest rates, and net debt reduction for particular menu items are derived. It is shown that there is not a direct relationship between the exchange discount and the market price.
JEL Classification: 433, 440
Suggested Citation: Suggested Citation