Credit spreads and CDS premiums are investigated before, during and after the financial crisis with a flexible credit risk model. The latter is designed to capture empirical facts: a regime-switching framework adjusts its behaviour to the financial cycles and the negative relationship between recovery rates and default probabilities appears endogenously.

Using a firm-by-firm estimation of 225 companies, notorious empirical questions are revisited, including the famous credit spread puzzle. The proportion of the spread explained by credit risk decreases during the crisis. Liquidity plays a significant role in explaining this gap throughout the financial turmoil and persists thereafter.