Finally, under the US Bankruptcy Code the borrower remains in control upon bankruptcy filing, though at the request of the creditors the bankruptcy court can change the company's management. The rationale for this provision is that the borrower is in a better position than the creditors to turn around the company and should therefore get the first shot. The receivership doctrine works in reverse, giving creditors the first opportunity at reorganisation. Models of credit risk Lenders and borrowers use models of credit risk to help address various issues. Asset managers and other lenders are interested in knowing the spreads that they should demand for investing in credit-risky securities such as loans and bonds.
Bankers are interested in evaluating the overall credit risk of their loan portfolios.
Borrowers would like to know the effect of placing some contractual features and bond covenants on the pricing of their debt issues. Likewise investors may wish to know the value of converting bonds to equity. Structural approach The structural approach to credit risk focuses purely on the borrower's balance sheet and on calculations of the value of the borrower's assets and liabilities. At any point the model tells the user how close the asset value of the borrower is to the default trigger and delivers estimates of default probabilities based on information contained in the balance sheet. Market factors can also be included in these models.