In this paper we develop a contingent valuation model for zero-coupon bonds with de- fault. In order to emphasize the role of maturity time and place of the lender s claim in the hierarchy of debt of a Þrm, we consider a Þrm that issues two bonds with different ma- turities and different seniorage. The model allows us to analyze the implications of both debt renegotiation and capital structure of a Þrm on the prices of bonds. We obtain that renegotiation brings about a signiÞcant change in the bond prices and that the effect is dis- persed through different channels: increasing the value of the Þrm, reallocating.
