Bridge over ocean
1 May 2004 Financial Analysts Journal Volume 60, Issue 3

Bond Games

  1. George S. Oldfield

Corporate debt indentures are complex contracts that include a variety of restrictions and options. On one side, an issuing corporation can engineer game-based transactions to escape covenant restrictions or capture option value for its stockholders. On the other side, bondholders can form coalitions to resist a corporation's endeavors and capture option value for the coalition. This article analyzes several types of such strategic debt transactions. The examples show that corporate debt games can strongly influence corporate bond prices.

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