Uploaded April 2025 | Updated September 2026, 1 week ago
In this class, we looked at the design principles for debt. We started by completing a five step process for designing the perfect debt before looking at both intuitive and quantitative ways of debt design. In particular, we looked at a macro economic regression of firm value/operating income against interest rates, GDP, inflation and exchange rates. Keeping in mind the objective of matching debt to assets, think about the typical investments that your firm makes and try to design the right debt for the project. If your firm has multiple businesses, design the right kind of debt for each business. In making these judgments, you should try to think about
- whether you would use short term or long term debt
- what currency your debt should be in
- whether the debt should be fixed or floating rate debt
- whether you should use straight or convertible debt
- what special features you would add to your debt to insulate the company from default
Your objective is to get the tax advantages without exposing yourself to default risk.
If you want to carry this forward and do a quantitative analysis of your debt, you can try regressing enterprise value and operating income at your firm against macroeconomic variable. The spreadsheet below helps you do that:
http://www.stern.nyu.edu/~adamodar/pc/macrodur.xlsx
It has annual and quarterly data through 2024. Just a warning that it is extremely noisy and may spit out output that does not make sense. It also contains the sector averages, broken down by SIC code.
Slides: nyu.box.com/s/5tu5br3d07oc5z8o2sgi2zbul2gaw9m7
Post class test:
https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session20test.pdf
Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session20soln.pdf
In this class, we looked at the design principles for debt. We started by completing a five step process for designing the perfect debt before looking at both intuitive and quantitative ways of debt design. In particular, we looked at a macro economic regression of firm value/operating income against interest rates, GDP, inflation and exchange rates. Keeping in mind the objective of matching debt to assets, think about the typical investments that your firm makes and try to design the right debt for the project. If your firm has multiple businesses, design the right kind of debt for each business. In making these judgments, you should try to think about
- whether you would use short term or long term debt
- what currency your debt should be in
- whether the debt should be fixed or floating rate debt
- whether you should use straight or convertible debt
- what special features you would add to your debt to insulate the company from default
Your objective is to get the tax advantages without exposing yourself to default risk.
If you want to carry this forward and do a quantitative analysis of your debt, you can try regressing enterprise value and operating income at your firm against macroeconomic variable. The spreadsheet below helps you do that:
http://www.stern.nyu.edu/~adamodar/pc/macrodur.xlsx
It has annual and quarterly data through 2024. Just a warning that it is extremely noisy and may spit out output that does not make sense. It also contains the sector averages, broken down by SIC code.
Slides: nyu.box.com/s/5tu5br3d07oc5z8o2sgi2zbul2gaw9m7
Post class test:
https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session20test.pdf
Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session20soln.pdf
