Optimal Debt Exchange Offers
Résumé
This paper examines the pricing and efficiency implications of debt exchange offers. The continuous-time model employed yields simple asset pricing formulae as well as closed-form solutions for the parameters characterising optimal debt exchanges offers. Polar cases are examined in which the debt is either held by a single bank or by many bond-holders, that is respectively private or public debt. A comparative analysis of the efficiency properties of each form of debt yields the interesting finding that under the often criticised exit-consent provision, optimal public debt exchange offers are ex-ante the most efficient.