Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 18, 2021 erstellt
Description:
This paper addresses the classical real options problem taking debt renegotiation into account. A critical feature is that equityholders can freely initiate debt renegotiation at most once after debt issuance. We provide explicit solutions of the pricing and timing of the option to start a project, optimal capital structure and optimal debt renegotiation strategy for equityholders. We produce a proof of a widely-recognized assumption that the best renegotiation threshold is just the original default threshold. We show that the optimal new reduced coupon rate after renegotiation is proportional to the original one. For a low renegotiation cost and a low debtholders' bargaining power, equityholders tend to invest in high-risk projects. Debt renegotiation increases investment option value and accelerates investment. For almost all realistic tax rates in practice except very high ones, the renegotiation increases debt leverage