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OAEA 2115 - Debt Fundamentals

Type d'enseignement : Seminar

Semester : Spring 2017-2018

Number of hours : 24

Language of tuition : English

Pre-requisite

There are no academic pre-readings but students are encouraged to regularly read newspapers and have a general sense of major international credit issues in recent news. Students will also need to read business cases prior to each class. These cases will serve to illustrate graphically each session and guide our class discussion. Other materials, such as short movie clips, may be used during the class, whenever relevant.

Course Description

This course is designed to explore the economic, social, legal, and political issues that arise around debt policy and renegotiation, for national governments, public bodies, financial institutions, corporate firms or even households. The discussion will take the perspective of each of these different types of debtors, and that of their creditors, regulators or other stakeholders, whether individuals or institutions, states or hedge funds.

Understanding the mechanisms of international debt capital markets and the fundamental drivers of credit risks is at the core of the course. But this objective will be achieved through the discussion of practical situations. While studying real cases, we will focus on decision-making processes in critical situations such as sovereign and banking crises, major corporate restructurings or national debates on household finance. In particular, we will discuss the recent financial crisis, from its origins as a national housing problem to its development as a one of the major international economic and political crises of the last decades. In our sessions, particularly when exploring financial crises, we will debate the challenges that these pose to the ways in which market players have traditionally assessed and managed credit risk and what changes this may imply to the approach that governments, regulators, or international financial institutions follow.

This fundamental course on credit is designed for all students, irrespective of their concentrations and future career choices, as it tackles concerns relevant to investors, entrepreneurs, regulators, academics or journalists, consumers and mere citizens alike. Thus, while it introduces basic financial concepts related to debt, the course will not be taught as a quantitative curriculum for financial credit analysts. Instead, it will focus on a general understanding of debt issues, emphasize some usual conceptual pitfalls and encourage creative thinking among participants.

The class will host occasional guests: senior executives from the private or public sector will provide their perspective on the cases and issues discussed, often ones which they or the institutions they represent played a major role in. Guests will also be available to answer questions about their experience and their present jobs.

Sovereign debt

- The Eurozone and the Sovereign Debt Crisis. Darden Business Publishing. UV5652.
- The Barber of Buenos Aires: Argentina's Debt Renegotiation. Harvard Business School.
9-706-034.
- International Capital Markets and Sovereign Debt: Crisis Avoidance and Resolution.
Harvard Business School. 9-707-018.

Corporate debt

- Bankruptcy and Restructuring at Marvel Entertainment Group, Harvard Business School. 9-298-059
- Axa Private Equity: the Diana Investment. Harvard Business School. 9-812-042.
- Bed Bath and Beyond: The Capital Structure Decision. Kellogg School of Management. KEL082.

Household/SME/Project debt - Structured Finance

- Negotiating Trust: Borrowers, Lenders, and the Politics of Household Debt. Harvard
Business School. 9-710-048
- A Tale of Two Hedge Funds: Magnetar and Peloton. Kellogg School of Management. KEL402.
- Restructuring Bulong Project's Debt. Harvard Business School. 9-203-027.

Teachers

WEIL, Ariel E. (Vice-President, Moody's SAS)

Pedagogical format

The entire course will be taught in the spirit of the case method: we will build each session around business cases, short research pieces or newspaper articles, leveraging the inputs and background of class participants. Therefore, participation is a key component of the course and everyone will be expected to contribute one's past experience, knowledge and preparatory work. We will also approach basic concepts in this discussion mode rather than through one-sided communication.

Course validation

Grades will be based primarily on the quality and consistency of class participation. There will also be a mini-test on key course concepts and a short final paper to elicit creative thinking and teamwork.