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This dissertation was originally written for fulfilment of the degree MSc Finance at Lancaster University Management School, and is now submitted as partial fulfilment of the double degree in IMSc Business Administration at Católica-Lisbon. Part 1 examines literature on approaches to model credit risk, and aims to identify sources of corporate credit risk and determinants of credit spread. The evolution and empirical evidence of various credit risk model is presented, and the Merton and Leland models are explained. Part 2 aims to provide an idea of Scandinavian Airlines financial performance, and its credit risk. The performance is evaluated using accounting and share price data, while the credit risk is estimated using the models developed by Merton and Leland. The analysis shows that the current traded bonds yield a high return relative to a low default probability, and I would recommend buying the bonds.