This paper proposes a valuation model for revolving credit agreements and loan commitments. Draw downs and repayments are only partially predictable by the bank. The bank can claim the material adverse change condition. The firm can cancel the credit agreement by stopping the payment of usage...

This theoretical study presents residual income valuation formulae that account for the firm's credit risk and investors' personal taxation. The formulae can determine optimal financial leverage and the value of accounting based debt covenants. The firm's default may be triggered by breach of...

This note revisits the valuation of the tax shield of corporate borrowing when borrowing is not linked to enterprise value. In this case past literature has typically discounted the tax shield at the cost of borrowed capital gross of corporate tax, not net of corporate tax. Yet the latter often...