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| Author: | Bhanot, K. Mello, A.S. |
| Title: | Should corporate debt include a rating trigger? |
| Journal: | Journal of Financial Economics
2006 : FEB, VOL. 79:2, p. 69-98 |
| Index terms: | corporate finance credit rating debt |
| Language: | eng |
| Abstract: | This article examines the behavior of equityholders when corporate debt includes a covenant specifying a pre-determined payment to debtholders when the debt is downgraded. This covenant is referred to as a “rating trigger”. The shareholders of companies with a low-risk profile and operational flexibility choose debt with a trigger, while the owners of a company with a high-risk profile and little flexibility choose regular debt. |
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