On Debt Service and Renegotiation when Debt-holders Are More Strategic

The contingent claims analysis of the firm financing often presents a debt renegotiation game with a passive bank which does not use strategically its capability to force liquidation, contrary towhat is observed in practice. The first purpose of this paper is to introduce more strategic bank behaviour into the continuous-time model developed by Mella-Barral and Perraudin (1997) and Hackbarth, Hennessy, and Leland (2007). Its second purpose is to account for variations in the information obtained by the parties during the contract period. We show that with public information and private debt only, the optimal probability of debt renegotiation is fixed by the firm's anticipated liquidation value. When we add public debt and asymmetric information, the good-type firm may be tempted to mimic the bad-type to reduce its debt service. We show that to deter such mimicking, banks may sometimes refuse to renegotiate with strong firms having a low liquidation value. Our results are in line with the empirical observation that recovery rate at emergence of bankruptcy is function of the share of private debt in all the firm's debt and is relatively low.Debt service, debt renegotiation, recovery rate, strategic bank, bankruptcy, contingent claim

Using Holography to reduce aircraft costs

FANTOM : Full-field Advanced Non Destructive Technique for On-line Thermomechanical Measurements on Aeronautical Structure

X-ray observation of micro-failures in granular piles approaching an avalanche

An X-ray imaging technique is used to probe the stability of 3-dimensional granular packs in a slowly rotating drum. Well before the surface reaches the avalanche angle, we observe intermittent plastic events associated with collective rearrangements of the grains located in the vicinity of the free surface. The energy released by these discrete events grows as the system approaches the avalanche threshold. By testing various preparation methods, we show that the pre-avalanche dynamics is not solely controlled by the difference between the free surface inclination and the avalanche angle. As a consequence, the measure of the pre-avalanche dynamics is unlikely to serve as a tool for predicting macroscopic avalanches

Investissement en incertitude : extension du problème de la taille optimale d’une usine

Dans cet article, nous présentons un problème de choix d’investissement en incertitude. Au moment de prendre leurs décisions, les administrateurs ne connaissent pas la taille du marché (volume des ventes) mais connaissent le prix de vente du produit et la distribution a priori du niveau des ventes. Nous comparons le comportement des entreprises neutres au risque à celui des entreprises riscophobes. Un résultat intéressant est que les entreprises neutres au risque ne sont pas indifférentes à l’introduction et à la variation du risque. Nous présentons plusieurs extensions au problème initial dont la prise en compte de la valeur d’une étude de marché et le changement de la distribution a priori des ventes.In this article, we present a problem of investment under uncertainty. When the managers make investment decisions they do not know the market (sales opportunities); however they know the price and the a priori distribution of sales. We compare the behavior of risk averse firms to that of risk neutral firms. One interesting result in that risk neutral firms are not indifferent to the introduction of risk and to the change in risk. We present many extensions of the initial problem. Two of them are the consideration of market studies and the change of the a priori distribution of sales

Entry, Imperfect Competition, and Futures Market for the Input

We analyze firms’ production and hedging decisions under imperfect competition with potential entry. Specifically, we consider an oligopoly industry producing a homogeneous output in which risk-averse firms incur a sunk cost upon entering the industry, and, then, compete in Cournot with one another. Each firm faces uncertainty in the input cost when making production decision, and has access to the futures market to hedge its random cost. We provide two sets of results. First, we show that there exists a unique equilibrium in which, in contrast to previous results in the literature, production and output price depend on the distribution of the spot price and risk aversion, i.e., there is no separation when the firms have access to the futures market. Second, we study the effect of access to the futures market on entry, production, and prices. The effect of access to the futures market on the number of firms is ambiguous depending on the value of the futures price and the parameters of the model. We also show that hedging induces the risk-averse firm to produce more, while speculating reduces production