A sovereign that is issuing debt denominated in foreign currency is exposed to a mismatch between the value of its assets that can be used to serve the debt, denominated in local currency, and the value of its liability. During economic crisis, when the probability of default by the sovereign...

We propose a new model for the valuation of loan commitments and some of their main features including the MAC (Material Adverse Change) clause. We employ a two-period contingent claim approach. The advantage of this approach is that it is based on rational economic considerations that are...

The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the...

We study in this paper the considerations that should be taken into account in the decision of currency decomposition of debt. The problem we are addressing in this paper is what should be the differential credit spread for a given firm, whether it issues bonds in local currency or in a foreign...

We propose a new approach to dynamic representation of different groups of stakeholders on the board of directors. This approach is based on a simple economic model of the firm, with an objective function to maximize its market value. We look at the marginal claim of each stakeholder on the...

Many bankruptcy codes implicitly or explicitly contain net-worth covenants, which provide the firm's bondholders with the right to force reorganization or liquidation if the value of the firm falls below a certain threshold. In practice, however, default does not necessarily lead to immediate...

Banks worldwide are subject to increasing regulation and, simultaneously, find themselves under the close scrutiny of market analysts and screening of large institutional investors. Banks are required to maintain minimal equity relative to both total and risky assets, market analysts expect...

We show how, in a Merton-type model with bankruptcy, the dividend policy impacts the values of equity and debt as well as credit risk. The recent financial crisis has emphasized the fact that excessive dividends can lead to financial distress. There is a strong need to set qualitative and...

The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the...