We generalize the Poland-Scheraga (PS) model to the case of a circular DNA, taking into account the twisting of the two strains around each other. Guided by recent single-molecule experiments on DNA strands, we assume that the torsional stress induced by denaturation enforces formation of supercoils whose writhe absorbs the linking number expelled by the loops. Our model predicts that, when the entropy parameter of a loop satisfies $c le 2$, denaturation transition does not take place. On the other hand for $c>2$ a first-order denaturation transition is consistent with our model and may take place in the actual system, as in the case with no supercoils. These results are in contrast with other treatments of circular DNA melting where denaturation is assumed to be accompanied by an increase in twist rather than writhe on the bound segments.
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