The equity of a levered firm can be thought of as a call option. When a firm issues debt it is equivalent to the shareholders selling the assets of the firm to the debtholders, who pay for the assets with cash plus an implied call option whose exercise price is equal to the principal value of the debt plus interest. If the company is successful, the stockholders will buy the company back by exercising their call option and thus paying the principal and interest on the debt. Otherwise stockholders will default on the loan, which amounts to not exercising their call option and thus giving the company to the creditors.