The amount owed to the creditors doesn’t change in that scenario. The screw up (assuming the market recognizes it) would destroy value for the equity holders.

The amount owed to the creditors doesn’t change in that scenario. The screw up (assuming the market recognizes it) would destroy value for the equity holders. Another way to think about total enterprise value is that there are two groups of people who have a claim on the business: the equity holders and the creditors. In order to own the business free and clear, you need to buy both of their claims. The total equity claim is the market cap and the total creditor claim is the outstanding debt.