Pay Now or Later: Financial Flexibility and Security Design
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Topic: | Pay Now or Later: Financial Flexibility and Security Design | |
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Time: | Friday , 2012-05-18 12:00-08:00 | |
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Speaker: | , | |
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Affiliations: | University of Wisconsin | |
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Topic:
Pay Now or Later: Financial Flexibility and Security Design
Time:
星期四,2012-05-18 10:30-12:00
Venue:
Room 505, Datong Building West Huaihai Road 211, SAIF
Speaker:
Antonio Mello
Pay Now or Later: Financial Flexibility and Security Design Recent years have witnessed a proliferation of new types of debt securities. Amongst these, PIK-Toggle bonds give a borrower the choice between rolling over coupon payments by issuing additional bonds or paying the coupon in cash. These bonds are often characterized as ‘’covenant light’’. In a setting where there is asymmetric information about the borrowers’ cash flows and a possibility of diversion, we show that a PIK-Toggle bond is an optimal contract for financially constrained firms that restructure their operations. A PIK-Togggle contract serves as a screening device so that firms with high cash flows choose regular coupon debt while viable firms with temporary low cash flows choose PIK-Toggle debt to raise funds to restructure. |
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