... equity holders face the same payoff as in the do-nothing case the government receives the difference between the book value and the realized value. On the other hand, if the asset value turns ... on the one hand, the higher the conversion ratio, the lower the probability of default becomes, since more cash is raised initially; on the other hand, when the conversion ratio is lower, the ... schemes, the optimal size of the government transfer is equal to the increase in debt holders’ wealth created by the restructuring, V’ (D) – V(D). Whether they keep their bonds or sell them, all...