Pricing corporate securities as contingent claims / Kenneth D. Garbade.

Includes bibliographical references and index.

Print version record.

An examination of the relative value of securities in a corporation's capital structure, using the concept of contingent value analysis.In 1973, Fischer Black, Myron Scholes, and Robert Merton pointed out that securities issued by a corporation can be priced as claims whose values are contingent on the value of the enterprise as a whole. The notion of treating corporate securities as contingent claims is intrinsically important, but it is also important because it integrates a variety of otherwise loosely related topics, including equity risk, credit risk, seniority and subordination, early redemption of callable debt, and conversion of convertible debt.Bringing together developments from the past thirty years in contingent valuation, this book examines the relative value of securities in a corporation's capital structure, including debt of different priorities, convertible debt, common stock, and warrants. The book emphasizes the importance of accounting for the institutional characteristics of default, bankruptcy, and voluntary recapitalization of a financially distressed firm, as well as the exercise of managerial discretion in calling debt for early redemption, servicing debt, paying dividends to common shareholders, and undertaking strategic actions such as leveraged recapitalizations and spin-offs.

1. Introduction, Overview, and Assumptions -- I. Basic Concepts. 2. The Contingent Value of Debt and Equity. 3. Senior and Subordinated Debt. 4. Institutional and Empirical Characteristics of Bankruptcy. 5. Bankruptcy Costs and Violations of the Absolute Priority Rule -- II. Securities with Call and Conversion Options. 6. Callable Debt. 7. Early Redemption of Callable Debt. 8. Convertible Debt. 9. Conversion Forcing Calls of Convertible Debt. 10. Warrants -- III. Payments to Creditors at Different Times. 11. Multiple Debt Securities. 12. Coupon-Bearing Debt. 13. Pay-in-Kind Bonds -- IV. Dividends and Other Discretionary Distributions to Shareholders. 14. Dividend-Paying Stock. 15. Optimal Dividend Policy. 16. Empirical Characteristics of Corporate Dividend Policy. 17. Leveraged Recapitalizations. 18. Spin-offs -- V. Assessing the Methodology. 19. Empirical Tests of Contingent Value Models. 20. Managerial Discretion and Implicit Management Options.

English.

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