We derive closed form solutions for the market values of a defaultable firm's debt and equity when debt has a heterogeneous priority structure and the absolute priority rule prevails. We determine the firm's interior optimal priority structure and its optimal capital structure. We also examine the spread differential between senior and junior bond yields and the term structure of credit spreads and default probabilities. Link to the article
ATTAOUI, S. and PONCET, P. (2013). Capital Structure and Debt Priority. Financial Management, 42(4), pp. 737-775.