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Abstract(s)
There are various ways to evaluate the credit risk of a public company using both
market data as well as accounting data. This paper focuses on applying two structural
models, Merton (1974) and Leland (1994), to access the default risk of a public
company, Thomas Cook Group plc. With estimated default probabilities higher than
90% during 2011 to 2012, it is shown that both models can predict bankruptcy, which
is in the form of debt restructuring and capital refinancing in early 2013. The Leland
model also suggests that there exists an optimal capital structure that could minimize
the credit spread.
Description
Keywords
Default probability Credit spread Structural model Public firm