This is an extension of the Merton model, one in which we relax the Absolute Priority Rule. As opposed to Merton’s model in which default is triggered once the asset $V_t$ falls below the repayable debt $L$, these are models in which junior debt claimants such as equity holders inject cash (typically by issuing new equities) and in so doing either prevent the asset falling below the debt level or they pick a value $V_t < L$ at which default will be triggered usually after injecting cash to address the shortfall in the asset value relative to the debt $L$.