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The Problem that Wasn’t: Coordination Failures in Sovereign Debt Restructurings

Author/Editor: Bi, Ran | Chamon, Marcos | Zettelmeyer, Jeromin
Authorized for Distribution: November 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,271KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Contrary to widespread expectation, debt renegotiations in the era of bond finance have generally been quick and involved little litigation. We present a model that rationalizes the initial fears and offers interpretations for why they did not materialize. When the exchange offer is sufficiently attractive vis-à-vis holding out, full participation can be an equilibrium. Legal innovations such as minimum participation thresholds and defensive exit consents helped coordinate creditors and avoid litigation. Unlike CACs, exit consents can be exploited to force high haircuts on creditors, but the ability of creditors to coordinate to block exit consents can limit overly aggressive use.
 
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Series: Working Paper No. 11/265
Subject(s): Debt restructuring | Economic models | Emerging markets | Sovereign debt
Author's keyword(s): Sovereign debt | sovereign debt restructuring | exit consents | creditor coordination
 
English  
    Published:   November 1, 2011        
            Format:   Paper
    Stock No:   WPIEA2011265   Pages:   28
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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