Skinner, Frank S., "A Trinomial Model of Bonds with Default Risk", Financial Analysts Journal, Vol. 50, No. 2, (March/April 1994), pp. 73-78.
Abstract: Default risk can be modeled as an evolution of a series of events, rather than a binomial occurrence of default or no default. This insight results in a simple trinomial model for bonds with default risk that incorporates four major factors that influence the price of corporate debt. These four factors are the possibility of a rating change, recovery in the event of default, changes in the time to maturity and movements in the underlying term structure.