## 042325-gsdr-compendium-of-common-understanding-on-technical-issues-april-2025

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---

### Restructuring Timelines
- Key shared objectives:
  - From April 2024 GSDR Cochairs Progress Report: aim for "program approval within 2–3 months of SLA."
  - From April 2025 GSDR Cochairs Progress Report: shared objective that "a debt restructuring should aim at enabling program approval within 2–3 months of SLA, and an agreement in principle on the key parameters of the treatment about six months after program approval."
- Concerns and operational suggestions:
  - Timeliness remains a concern: "timelines remain beyond the typical time frame observed in the past, negatively impacting the debtor and its creditors."
  - Shortening the timeline to form an official creditor committee (OCC) could "take the best advantage of a format that ensures the fastest and most efficient sharing of information with all participants" and "accelerate their own restructuring processes."

### Information Sharing
- Guidance and practices:
  - IMF and World Bank published operational guidance on what information can be shared, with whom, and through which channels (IMF Paper No. 2023/027: Staff Guidance Note on Information Sharing in The Context of Sovereign Debt Restructurings (June 2023); and Bank Guidance: Staff Guidance Note on Information Sharing in the Context of Sovereign Debt Restructurings).
- Agreed practices from April 2025 GSDR Cochairs Progress Report:
  - (i) a debtor convened meeting of all official bilateral and private creditors, very early in the process, to explain the context and goals of the restructuring, ensuring equal access to information;
  - (ii) engagement with OCC co-chairs and representatives of private creditors at specific points, such as once cut-off dates or scope of any official bilateral creditor treatment has been agreed; and/or once a consensus around a debt treatment by official bilateral creditors has emerged.
- Rationale:
  - Strengthening information sharing would "support parallel negotiation between the debtor and the different groups of creditors, thus accelerating the overall process."

### Restructuring Perimeter
- Short-Term Debt:
  - From October 2023 GSDR Cochairs Progress Report: growing support to "generally exclude short-term debt (debt with an original maturity of one year or less) from the restructuring perimeter."
  - Exclusion of short-term debt: "common practice under Paris Club treatments and an explicit feature of the Common Framework" and important to "help maintain access to trade finance."
- Domestic Debt (DDRs):
  - Domestic debt restructurings differ from external debt restructurings and involve trade-offs.
  - No presumption ex ante to include or exclude domestic debt; assessment should be "data-driven and country-specific."
  - Considerations include: overall level of public debt, share of domestic debt in total public debt, financial depth, legal features and currency and creditor composition of domestic debt, and social and political implications.
  - DDR may be necessary when "public debt is assessed unsustainable and EDR would be insufficient to restore debt sustainability," but inappropriate in other cases.
  - Decision on DDR should be based on scenario analysis that weighs costs and benefits of different combinations of DDR and EDR, anchored in restoring debt sustainability while minimizing costs to financial stability, economic growth, and social cohesion.
  - Transparency and disclosure of the country’s domestic debt portfolio, regardless of pursuing DDR, helps provide comfort to external creditors and can facilitate EDR.
- Non-Resident Holders of Domestic Debt (NRHs):
  - From April 2024 GSDR Cochairs Progress Report: emerging consensus to treat NRHs on a case-by-case basis.
  - Views vary: some advocate including NRHs if included in the DSA; others note NRHs hold domestic-law instruments and are intrinsically linked to the decision to include or exclude domestic debt from the perimeter.
  - Further discussion needed to deepen common understanding.
- SOE Debt:
  - From April 2024 GSDR Cochairs Progress Report: limited progress toward consensus.
  - Divergent views:
    - Some participants: SOE debt should be excluded from DSA and restructuring perimeters.
    - Others: SOEs are a relevant source of fiscal risk, especially in LICs, and inclusion in DSA perimeter (application of current LIC DSF, with limited exceptions) is warranted.
  - Flexibility exists for creditors and debtor to agree on a restructuring perimeter that differs from the DSA perimeter, with inevitable burden-sharing consequences.
  - Issue of SOE debt to continue to be discussed, including as part of the review of the LIC DSF.

### Restructuring Parameters
- Cutoff Dates:
  - Cutoff dates are key to protect new financing, including emergency support.
  - Early clarity on cutoff dates is critical; practice has been flexible and case-by-case.
  - In recent cases, cutoff dates generally "not later than the date of the staff-level agreement (SLA) reached between the authorities and IMF staff."
- Comparability of Treatment (CoT) between Official Bilateral and Private Creditors:
  - Assessing and enforcing CoT remains a critical issue needing further clarification.
  - In recent Common Framework cases, CoT has been:
    - Assessed using the three Common Framework criteria:
      - i. "The changes in nominal debt service over the IMF program period;"
      - ii. "Where applicable, the debt reduction in net present value terms (NPV), using a “New NPV / Old NPV” formula and the discount rate of the LIC DSAs (currently 5 percent);"
      - iii. "The extension of the duration of the treated claims;"
    - Enforced via mechanisms such as claw-back clauses and/or requests to remain in arrears vis-à-vis private creditors until an agreement respecting CoT is found.
  - For restructurings outside the Common Framework, NPV calculations have sometimes used two or more discount rates for sensitivity analysis.
  - GSDR discussions reconfirmed official bilateral creditors intend to maintain this approach.
- Practical steps and coordination:
  - Support for:
    - Enhanced information sharing and coordination across creditor groups on CoT metrics, including expected NPV relief. Official bilateral creditors should provide the debtor clarity on quantitative metrics for CoT and related room for maneuver.
    - Timely verification of consistency with debt targets and IMF program parameters: debtor country should share restructuring strategy with IMF staff before any restructuring agreement is made public to confirm consistency.
  - Verification and coordination expectations:
    - Private creditors and the debtor should ensure, before finalizing and announcing an agreement in principle, a verification is completed by the debtor with IMF staff on consistency with program parameters and with official bilateral creditors on CoT.
  - Parallel negotiations between creditor groups are not precluded and, if preferred by the debtor, should be supported to improve chances of swift resolution.
  - From April 2025 GSDR Cochairs Progress Report: "significant experience in the implementation of CoT" but "further efforts could be done to help debtors understand how CoT will be evaluated and how it can be explained to the different creditor groups."
  - Growing consensus that publication by official creditor committees of the key terms of their restructuring once an agreement is reached, on a case-by-case basis, would facilitate implementation of comparability of treatment across creditors.

### Other Aspects
- Debt Swaps and Climate Resilient Debt Instruments:
  - Debt-for-nature/debt-for-development swaps:
    - Viewed as potentially useful for liability management but "generally not appropriate for situations where debt restructuring is required."
    - Need for careful overall cost-benefit analysis.
    - More work needed to standardize instruments and make them "more rapidly and cheaply scalable."
    - Emphasis on strong alignment with development outcomes and country priorities, and need to increase transparency of documentation and governance.
  - Climate Resilient Debt Clauses (CRDCs):
    - Generally viewed as useful with broad support to scale up their use.
    - Technical issues discussed to facilitate adoption and implementation beyond the standard ICMA term sheet.
    - Expansion beyond hurricane events identified as challenging due to data history and risk/probability documentation; ongoing work to define standard clauses for other events noted as promising.
    - "Transparency and clarity about the indicators triggering the clauses are critical."
- Liability Management Operations (LMOs):
  - From April 2025 GSDR Cochairs Progress Report: active voluntary LMOs can bring tangible benefits for certain countries, including easing liquidity challenges and creating space to finance development spending that can generate higher growth and improve debt ratios; benefits depend on country-specific situations.
- Engagement with Credit Rating Agencies (CRAs) (from April 2024 and April 2025 Cochairs Progress Reports):
  - CRAs explained criteria to classify Distressed Debt Exchanges (DDEs): focus on reduction of value to holders relative to contractual terms and whether the exchange aims at avoiding default.
  - Rating implications of debt swaps and liquidity relief operations assessed case-by-case.
  - Debt-for-nature/debt-for-development swaps treated like any debt exchange operation (which may or may not imply distress).
  - Importance of increasing transparency, information sharing and communication emphasized. CRAs welcome closer engagement with issuers.
  - CRAs clarified assessments of:
    - Partial guarantees: assessed in some asset classes; limited sovereign transactions to date; World Bank-supported debt for education swap in Code d’Ivoire in December 2024 suggests space to help countries via partial guarantees.
    - LMOs: assessment of whether an LMO is a distressed event is based on (i) "whether a buyback takes place at a significant discount" and (ii) "whether it is done to prevent a default."

---

### Credit Rating Agencies (CRAs) and Restructuring (Section 2)
- CRA assessment practices and engagement:
  - CRAs consider whether the sovereign still has market access, the size of the transaction, and whether the bond bought back matures in the short-term; none of the criteria are binding and ultimately there is a significant element of judgement.
  - The use of Collective Action Clauses (CACs) would indicate the non-voluntary nature of an exchange.
  - CRAs underlined that early engagement with them is key; they are open to early engagement and can point to previous experiences to help issuers.
  - By regulation, CRAs cannot tell how a transaction should be structured, but they can point to previous experiences and past cases.
  - Issuers considering an LMO should consider proactive engagement with CRAs, using established frameworks to exchange confidential information.
- Timelines for rating upgrades following restructuring:
  - CRAs highlighted the issue of countries remaining in a default or selective default rating due to residual amounts of unrestructured debt.
  - All three CRAs reaffirmed their focus on commercial debt; official debt treatment falls outside their rating scope.
  - Sovereigns are upgraded once they have normalized relations with a significant majority of private creditors, not necessarily all of them.
  - There is no specific numerical threshold for how large that majority needs to be; CRAs base their judgement on a case-by-case analysis.
  - Important considerations include how disruptive holdout creditors could be and whether the debtor has started good faith negotiations with all commercial creditors.
  - Importance of information sharing highlighted by debtor countries and CRAs to explain what keeps countries in default status.

### Non-bonded Commercial Debt
- Observations and challenges:
  - Significant progress in timeliness and efficiency of restructuring official bilateral debt, notably via the Common Framework.
  - Restructuring of bonded debt is largely ensured by widespread use of CACs.
  - Restructuring of non-bonded commercial debt (typically commercial banks) lacks coordination mechanisms beyond CoT application by official bilateral creditors; debtor needs to negotiate with each creditor, which can be lengthy.
  - In practice, this often does not affect economic recovery as a Fund-supported program can continue if the debtor negotiates in good faith to meet Lending into Arrears policy conditions.
  - The World Bank can provide budget support financing conditional on satisfactory progress of debt restructuring consistent with an adequate macroeconomic policy framework.
  - GSDR participants explored issuing "good practices" to help debtors organize restructuring and launch parallel negotiations early; work to continue.

### State-Contingent Debt Instruments (SCDIs)
- Role and limitations:
  - SCDIs can help bridge gaps where uncertainty is high, but they should not be the norm.
  - Agreeing on a fully defined debt treatment early brings greater certainty and efficiency than contingent restructuring.
- Circumstances where SCDIs may be useful:
  - High uncertainty around economic outlook and future capacity to repay.
  - Major assumptions on future economic prospects significantly impact the restructuring envelope (e.g., new revenue sources).
- Design principles:
  - (i) careful selection of verifiable triggers that reflect increased repayment capacity;
  - (ii) ensure payments associated with SCDIs do not compromise debt sustainability (e.g., payout caps);
  - (iii) market-friendly design where feasible, such as one-time tests and shorter-maturity instruments to limit uncertainty.
- CoT and implementation challenges:
  - SCDIs complicate CoT assessments due to higher uncertainty over cash flows and lack of agreement on ex ante vs ex post assessment.
  - Different SCDIs across creditor groups may require additional iterations and affect timelines.
  - GSDR members supported a specific workshop to bring further clarity on SCDIs in CoT assessments.
  - If used, SCDIs should include clarity on whether official bilateral creditors will re-open agreements in the event SCDIs are triggered.
  - CoT assessment approaches:
    - Ex-ante CoT assessment possible when triggers, two-side contingent adjustments, and caps are clear.
    - Otherwise, ex-post clawback clauses may be needed.
    - Growing consensus since October 2024: when SCDIs are used, include clear triggers and caps on payoff to facilitate ex-ante CoT assessment, preferable to ex-post clawback activation.

### Collateralized Financing from Private Creditors
- Benefits and risks depend on specific terms:
  - Highest potential benefit when collateralized financing links project revenues to debt repayment with adequate disclosures mitigating mispricing.
  - Collateralized financing may harm when:
    - (i) it does not improve borrowing terms;
    - (ii) it weakens debt sustainability;
    - (iii) it is inadequately disclosed; and/or
    - (iv) it does not respect negative pledge clauses.
- Challenges in restructuring:
  - Collateralization can create de facto seniority for creditors.
  - Official sector coordination anchors negotiations around fair burden sharing even if some official claims are secured.
  - Political will is often more determining than collateral presence.
  - Private collateral can lead to impasses; official bilateral creditors may not compensate private creditors with collateralized claims by providing more debt relief.
  - IMF may be unable to provide financial support where prospects of a successful debt restructuring to restore sustainability are lacking.
  - Certain resource-backed loan contracts can make IMF’s Lending into Arrears Policy (LIA) impractical because debtor cannot run arrears.
- Consensus and capacity building:
  - Broad consensus on increasing awareness of benefits and risks of collateralized financing.
  - IMF and World Bank underline findings and policy considerations in their 2020 and 2023 notes on collateralized transactions to help countries assess and mitigate risks.
  - Support for trainings and technical assistance missions to help debtor countries.

### Debt Transparency, Debt Management and Debtor-Investor Relations
- Importance and recent progress:
  - Debt transparency is crucial to the global debt architecture.
  - Recent efforts improved legal frameworks, debt recording, data quality, standards, IT systems, debt reporting, and investor relations.
  - Debt data recording and dissemination has improved; further reconciliation could bring additional gains.
  - Need for improved timeliness and quality of data reporting and publication; undisclosed collateralized debt presents special challenges.
- Responsibilities and tools:
  - Debt transparency primarily the responsibility of borrowing country authorities; creditors also should reconcile claims with the borrower’s.
  - Reconciliation of loan-by-loan data reported by debtors to the World Bank’s Debtor Reporting System (DRS) with 17 Paris Club creditors showed promising results.
  - Consideration for development of a digital platform to facilitate automatic reconciliation between borrowers and official creditors and generate real-time data.
- Strengthening debt management:
  - Many countries have gaps in centralized processes to monitor debt accumulation and ensure consistency with debt strategies.
  - Domestic legal and procedural frameworks and debt management offices must be strengthened.
  - International community can provide technical assistance and capacity building.
- Investor relations:
  - Strong investor relations are key to maintaining or rebuilding financial flows; transparency is essential.
  - Proactive engagement (regular investor briefings, transparent debt disclosure, clear communication on future borrowing) helps sustain trust.

### Debt Service Suspension and Treatment of Arrears
- Approaches to debt service suspension (DSS) during negotiation:
  - Some support automatic DSS on official bilateral claims from the point when an SLA has been reached for an IMF-supported program to provide liquidity relief and incentivize expedited creditor action.
  - Others prefer DSS to be provided at the creditor’s discretion upon country request (upon reaching an SLA), without automaticity.
  - Consideration may be given to granting debtor countries a time-limited debt suspension.
- Treatment of arrears:
  - Proposal to waive penalties on arrears accumulated during the negotiation (as opposed to arrears accumulated before) has gained growing support.
  - Generally, arrears accrue at contractual rates (with potential penalty); treatment has varied across cases.
  - From April 2025 GSDR Cochairs Progress Report:
    - If the debtor country undertaking a debt restructuring is not in arrears to its official bilateral creditors, it can always present a request for a debt service suspension to its official bilateral creditors, with the decision subject to creditors’ approval and assessed on a case-by-case basis.
    - Work should continue on how to treat Past-Due Interest (PDI), which tend to be higher for private creditors than for official bilateral creditors, thus potentially affecting CoT assessments depending on its calculation date.

### Support Provided by MDBs
- MDB role and modalities:
  - GSDR Principals reached in April 2023 a common understanding on the role of MDBs to support countries undergoing debt restructuring through provision of net positive flows of concessional finance and grants.
  - Subsequent meetings explained how IDA provides net positive flows and ex-ante implicit debt relief via increased concessionality and grants to countries facing higher risks of debt distress.
  - Members underlined the importance of MDBs’ financial support.

*Source: 042325-gsdr-compendium-of-common-understanding-on-technical-issues-april-2025*

### Section 1

### Restructuring Timelines

### Key findings and shared objectives
- From April 2024 GSDR Cochairs Progress Report: aim for "program approval within 2–3 months of SLA."
- From April 2025 GSDR Cochairs Progress Report: shared objective that "a debt restructuring should aim at enabling program approval within 2–3 months of SLA, and an agreement in principle on the key parameters of the treatment about six months after program approval."
- Timeliness remains a concern: "timelines remain beyond the typical time frame observed in the past, negatively impacting the debtor and its creditors."
- Shortening the timeline to form an official creditor committee (OCC) could "take the best advantage of a format that ensures the fastest and most efficient sharing of information with all participants" and "accelerate their own restructuring processes."

### Information Sharing

### Guidance and practices
- IMF and World Bank published operational guidance on what information can be shared, with whom, and through which channels (IMF Paper No. 2023/027: Staff Guidance Note on Information Sharing in The Context of Sovereign Debt Restructurings (June 2023); and Bank Guidance: Staff Guidance Note on Information Sharing in the Context of Sovereign Debt Restructurings).
- From April 2025 GSDR Cochairs Progress Report: participants supported:
  - (i) a debtor convened meeting of all official bilateral and private creditors, very early in the process, to explain the context and goals of the restructuring, ensuring equal access to information;
  - (ii) engagement with OCC co-chairs and representatives of private creditors at specific points, such as once cut-off dates or scope of any official bilateral creditor treatment has been agreed; and/or once a consensus around a debt treatment by official bilateral creditors has emerged.
- Strengthening information sharing would "support parallel negotiation between the debtor and the different groups of creditors, thus accelerating the overall process."

### Restructuring Perimeter

### Short-Term Debt
- From October 2023 GSDR Cochairs Progress Report: growing support to "generally exclude short-term debt (debt with an original maturity of one year or less) from the restructuring perimeter."
- Exclusion of short-term debt: "common practice under Paris Club treatments and an explicit feature of the Common Framework" and important to "help maintain access to trade finance."

### Domestic Debt (DDRs)
- Domestic debt restructurings differ from external debt restructurings and involve trade-offs.
- No presumption ex ante to include or exclude domestic debt; assessment should be "data-driven and country-specific."
- Considerations when assessing inclusion/exclusion of domestic debt include, inter alia: overall level of public debt, share of domestic debt in total public debt, financial depth, legal features and currency and creditor composition of domestic debt, and social and political implications.
- DDR may be necessary when "public debt is assessed unsustainable and EDR would be insufficient to restore debt sustainability," but inappropriate in other cases.
- Decision on DDR should be based on scenario analysis that weighs costs and benefits of different combinations of DDR and EDR, anchored in restoring debt sustainability while minimizing costs to financial stability, economic growth, and social cohesion.
- Transparency and disclosure of the country’s domestic debt portfolio, regardless of pursuing DDR, helps provide comfort to external creditors and can facilitate EDR.

### Non-Resident Holders of Domestic Debt (NRHs)
- From April 2024 GSDR Cochairs Progress Report: emerging consensus to treat NRHs on a case-by-case basis.
- Some participants advocate including NRHs in restructuring if included in the DSA; others note NRHs hold domestic-law instruments and are intrinsically linked to the decision to include or exclude domestic debt from the perimeter.
- Further discussion needed to deepen common understanding.

### SOE Debt
- From April 2024 GSDR Cochairs Progress Report: limited progress toward consensus.
- Divergent views:
  - Some participants: SOE debt should be excluded from DSA and restructuring perimeters.
  - Others: SOEs are a relevant source of fiscal risk, especially in LICs, and inclusion in DSA perimeter (application of current LIC DSF, with limited exceptions) is warranted.
- Flexibility exists for creditors and debtor to agree on a restructuring perimeter that differs from the DSA perimeter, with inevitable burden-sharing consequences.
- Issue of SOE debt to continue to be discussed, including as part of the review of the LIC DSF.

### Restructuring Parameters

### Cutoff Dates
- Cutoff dates are key to protect new financing, including emergency support.
- Early clarity on cutoff dates is critical; practice has been flexible and case-by-case.
- In recent cases, cutoff dates generally "not later than the date of the staff-level agreement (SLA) reached between the authorities and IMF staff."

### Comparability of Treatment (CoT) between Official Bilateral and Private Creditors
- Assessing and enforcing CoT remains a critical issue needing further clarification.
- In recent Common Framework cases, CoT has been:
  - Assessed using the three Common Framework criteria:
    - i. "The changes in nominal debt service over the IMF program period;"
    - ii. "Where applicable, the debt reduction in net present value terms (NPV), using a “New NPV / Old NPV” formula and the discount rate of the LIC DSAs (currently 5 percent);"
    - iii. "The extension of the duration of the treated claims;"
  - Enforced via mechanisms such as claw-back clauses and/or requests to remain in arrears vis-à-vis private creditors until an agreement respecting CoT is found.
- For restructurings outside the Common Framework, NPV calculations have sometimes used two or more discount rates for sensitivity analysis.
- GSDR discussions reconfirmed official bilateral creditors intend to maintain this approach.

### Practical steps and coordination
- Support for:
  - Enhanced information sharing and coordination across creditor groups on CoT metrics, including expected NPV relief. Official bilateral creditors should provide the debtor clarity on quantitative metrics for CoT and related room for maneuver.
  - Timely verification of consistency with debt targets and IMF program parameters: debtor country should share restructuring strategy with IMF staff before any restructuring agreement is made public to confirm consistency.
- Verification and coordination expectations:
  - Private creditors and the debtor should ensure, before finalizing and announcing an agreement in principle, a verification is completed by the debtor with IMF staff on consistency with program parameters and with official bilateral creditors on CoT.
- Parallel negotiations between creditor groups are not precluded and, if preferred by the debtor, should be supported to improve chances of swift resolution.
- From April 2025 GSDR Cochairs Progress Report: "significant experience in the implementation of CoT" but "further efforts could be done to help debtors understand how CoT will be evaluated and how it can be explained to the different creditor groups."
- Growing consensus that publication by official creditor committees of the key terms of their restructuring once an agreement is reached, on a case-by-case basis, would facilitate implementation of comparability of treatment across creditors.

### Other Aspects

### Debt Swaps and Climate Resilient Debt Instruments
- Debt-for-nature/debt-for-development swaps:
  - Viewed as potentially useful for liability management but "generally not appropriate for situations where debt restructuring is required."
  - Need for careful overall cost-benefit analysis.
  - More work needed to standardize instruments and make them "more rapidly and cheaply scalable."
  - Emphasis on strong alignment with development outcomes and country priorities, and need to increase transparency of documentation and governance.
- Climate Resilient Debt Clauses (CRDCs):
  - Generally viewed as useful with broad support to scale up their use.
  - Technical issues discussed to facilitate adoption and implementation beyond the standard ICMA term sheet.
  - Expansion beyond hurricane events identified as challenging due to data history and risk/probability documentation; ongoing work to define standard clauses for other events noted as promising.
  - "Transparency and clarity about the indicators triggering the clauses are critical."

### Liability Management Operations (LMOs)
- From April 2025 GSDR Cochairs Progress Report: active voluntary LMOs can bring tangible benefits for certain countries, including easing liquidity challenges and creating space to finance development spending that can generate higher growth and improve debt ratios; benefits depend on country-specific situations.

### Engagement with Credit Rating Agencies (CRAs)
- From April 2024 GSDR Cochairs Progress Report:
  - CRAs explained criteria to classify Distressed Debt Exchanges (DDEs): focus on reduction of value to holders relative to contractual terms and whether the exchange aims at avoiding default.
  - Rating implications of debt swaps and liquidity relief operations assessed case-by-case.
  - Debt-for-nature/debt-for-development swaps treated like any debt exchange operation (which may or may not imply distress).
  - Importance of increasing transparency, information sharing and communication emphasized.
  - CRAs welcome closer engagement with issuers.
- From April 2025 GSDR Cochairs Progress Report:
  - CRAs clarified assessments of:
    - Partial guarantees: assessed in some asset classes; limited sovereign transactions to date; World Bank-supported debt for education swap in Code d’Ivoire in December 2024 suggests space to help countries via partial guarantees.
    - LMOs: assessment of whether an LMO is a distressed event is based on (i) "whether a buyback takes place at a significant discount" and (ii) "whether it is done to prevent a default."

*Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues. Version as of: April 23, 2025.*

### Section 2

### Section 2

### Credit Rating Agencies (CRAs) and Restructuring

- CRAs consider whether the sovereign still has market access, the size of the transaction, and whether the bond bought back matures in the short-term; none of the criteria are binding and ultimately there is a significant element of judgement.
- The use of Collective Action Clauses (CACs) would indicate the non-voluntary nature of an exchange.
- CRAs underlined that early engagement with them is key, for them to have a better understanding of the transaction which is being considered; they underlined their openness and interest to such an early engagement.
- By regulation, CRAs cannot tell how a transaction should be structured, but they can point to previous experiences and past cases that can help the issuer in its decision-making.
- Issuers considering an LMO should consider proactive engagement with CRAs, using established frameworks to exchange confidential information.
- On timelines for rating upgrades following restructuring:
  - CRAs highlighted the issue of countries remaining in a default or selective default rating due to residual amounts of unrestructured debt.
  - All three CRAs reaffirmed their focus on commercial debt; official debt treatment falls outside their rating scope.
  - Sovereigns are upgraded once they have normalized relations with a significant majority of private creditors, not necessarily all of them.
  - There is no specific numerical threshold for how large that majority needs to be; CRAs base their judgement on a case-by-case analysis.
  - Important considerations include how disruptive holdout creditors could be and whether the debtor has started good faith negotiations with all commercial creditors.
  - The importance of information sharing was highlighted by debtor countries as well as by CRAs to explain to debtor countries what keeps them in default status.

### Non-bonded Commercial Debt

- Significant progress has been observed in the timeliness and efficiency of the restructuring of official bilateral debt (in particular thanks to the Common Framework, which gathers Paris Club and non-Paris Club creditors), and coordination between the restructuring of official bilateral debt and bonded debt (through the implementation of the CoT clauses).
- The restructuring of bonded debt is now largely ensured by the widespread use of collective action clauses.
- The restructuring of non-bonded commercial debt (typically, commercial banks) is not governed by coordination mechanisms, beyond the application of the CoT clauses by official bilateral creditors; the debtor needs to negotiate with each individual creditor, which can be lengthy.
- In practice, this often does not affect the economic recovery of the country as, in particular, the Fund-supported program can continue to advance provided the debtor is negotiating in good faith so the conditions for the Lending into Arrears policy of the Fund are met.
- The World Bank can provide budget support financing conditional on satisfactory progress of debt restructuring consistent with an adequate macroeconomic policy framework.
- GSDR participants explored ways to facilitate earlier restructuring of non-bonded commercial debt, including through the possible issuance by the GSDR of “good practices” on how debtors could organize their restructuring process, and launch parallel negotiations early; they agreed to continue this work.

### State-Contingent Debt Instruments (SCDIs)

- SCDIs can help bridge the gap between borrower and creditors in certain restructuring negotiations where uncertainty is high, but they should not be the norm in debt restructurings.
- Agreeing on a fully defined debt treatment early brings certainty to the creditors and investors and is more efficient than a contingent restructuring.
- Circumstances where SCDIs may be useful:
  - Uncertainty around the economic outlook and future capacity to repay is so high that timely common ground is difficult to find.
  - Major assumptions on future economic prospects significantly impact the restructuring envelope (e.g., assumptions on new sources of revenues such as new oil fields, significant evolution of the debt carrying capacity).
- Design principles when SCDIs are used:
  - (i) a careful selection of verifiable triggers that best reflect increased repayment capacity by the borrower country,
  - (ii) ensuring that the payments associated with the use of the SCDIs do not compromise the borrower’s debt sustainability prospects (for instance by setting payout caps),
  - (iii) the use of market friendly design to the extent feasible, such as one-time tests and shorter-maturity instruments to limit uncertainty, subject to debt sustainability risks being adequately managed.
- SCDIs pose CoT challenges which need to be taken into account for the restructuring timeline:
  - Assessing CoT is complicated by SCDIs due to inherently higher uncertainty over cash flows and lack of agreement at early stages on whether CoT should be assessed on an ex ante or ex post basis.
  - The problem is exacerbated when private and official creditors have different SCDIs (or when only one creditor group has SCDIs), possibly requiring additional iterations across creditor groups.
  - These factors may impact the timeline of the restructuring; early engagement across creditor groups can facilitate a common understanding on trade-offs and the best path forward.
- GSDR members supported bringing further clarity on the treatment of SCDIs in CoT assessments through a specific workshop.
- If SCDIs are used, CoT implementation should include clarity on whether official bilateral creditors will re-open agreements in the event that SCDIs are triggered (including because the assessment that sustainability is restored must take into account any such payments).
- CoT assessment approaches:
  - CoT can be assessed on an ex-ante basis when there is sufficient clarity on triggers, two-side contingent adjustments, and appropriate caps on the payoff.
  - In the absence of such conditions, CoT could involve the use of ex-post clawback clauses.
  - Growing consensus from GSDR meetings since October 2024 that, when SCDIs are used, they should include clear triggers as well as caps on the payoff, to facilitate an ex-ante assessment of CoT which is preferable to an ex-post activation of clawback clauses.

### Collateralized Financing from Private Creditors

- The benefits and risks of collateralized borrowing depend on the specific terms of the financing.
- Collateralized financing of projects where future revenue streams are directly linked to debt repayment under adequate disclosures that mitigate the risk of mispricing for both unsecured and secured creditors has the highest potential for benefiting the borrower and protecting the longer-term development relationship with creditors.
- Collateralized financing can cause more harm than good when one or more of the following criteria are met:
  - (i) it does not improve borrowing terms;
  - (ii) it weakens debt sustainability;
  - (iii) it is inadequately disclosed; and/or
  - (iv) it does not respect negative pledge clauses.
- Collateralized lending from private creditors poses important challenges in restructuring cases:
  - Collateralization may provide a creditor with de facto seniority on its claim.
  - On the official sector side, coordination mechanisms such as the Paris Club or the Common Framework, or informal coordination where formal processes are not in place, anchor the negotiation primarily around achieving fair burden sharing even if some official claims are secured with collateral.
  - Political will to find a solution, or the absence thereof, is a more determining factor than the presence or absence of collateral.
  - On the private sector side, the presence of private collateral can lead to an impasse.
  - Official bilateral creditors may not stand ready to provide more debt relief to compensate a lower contribution of private creditors with collateralized claims than what would be consistent with the principle of comparability of treatment.
  - In such situations, the IMF may not be in a position to provide financial support given the lack of prospects of a successful debt restructuring to restore debt sustainability.
  - In some cases, specific features of certain resource-backed loan contracts can make the use of the IMF’s Lending into Arrears Policy (LIA) impossible because, in practice, the debtor country cannot run arrears to its creditor.
- There was broad consensus among GSDR participants on the importance of increasing awareness on the benefits and risks of collateralized financing practices.
- The IMF and World Bank underlined the findings and policy considerations included in their 2020 note on “Collateralized Transactions: Key Considerations for Public Lenders and Borrowers” and 2023 note on “Collateralized Transactions: Recent Developments and Policy Considerations“, which can help countries assess these benefits and risks, and adopt mitigating measures where needed, including on transparency and disclosure.
- There was general support on the importance to help debtor countries address these issues through trainings and technical assistance missions.

### Debt Transparency, Debt Management and Debtor-Investor Relations

- Debt transparency is crucial to the global debt architecture.
- Recent efforts by various stakeholders have enhanced legal frameworks, debt recording, data quality, standards, IT systems, debt reporting, and investor relations; these improvements foster informed decision-making, strengthen accountability and lower borrowing costs.
- Debt data recording and dissemination has improved over time; additional efforts in ongoing debt data reconciliation could bring further gains.
- Further progress is needed to improve the timeliness and quality of data reporting and publication; undisclosed collateralized debt poses particular challenges.
- GSDR participants generally agreed that debt transparency is primarily the responsibility of borrowing countries' authorities, but creditors also have a role to play, including by reconciling their claims with the borrower’s.
- The reconciliation of loan by loan data reported by debtor countries to the World Bank’s Debtor Reporting System (DRS) with 17 Paris Club creditors showed promising results.
- Given the urgency of debt transparency and accurate debt information, consideration should be given to the development of a digital platform to facilitate the automatic reconciliation of debt transactions between borrowers and official creditors, and generate real-time data.
- Bolstering debt management processes and debt management offices is vital:
  - In many countries, certain borrowing can be done without clear and centralized processes necessary to monitor debt accumulation and ensure consistency with sound debt strategies.
  - Domestic legal and procedural debt frameworks, and debt management offices, must be strengthened.
  - The international community can help through technical assistance and capacity building.
- Investor confidence is key in maintaining or rebuilding financial flows; transparency is essential to build that confidence.
- Strong investor relations serve as a “pull” factor for capital flows; proactive engagement, such as regular investor briefings, transparent debt disclosure, and clear communication on future borrowing plans, helps sustain trust.

### Debt Service Suspension and Treatment of Arrears

- On whether and how debt service could be suspended during negotiation, particularly for Common Framework cases:
  - Some support an automatic debt service suspension (DSS) on official bilateral claims from the point when an SLA has been reached for an IMF-supported program, providing liquidity relief and incentivizing creditors to expedite the process.
  - Others prefer creditors and creditor committees to provide DSS at the country’s request (upon reaching an SLA), without automaticity.
  - Consideration may be given to granting debtor countries a time-limited debt suspension.
- The proposal to provide a waiver on penalties on arrears accumulated during the negotiation, as opposed to arrears accumulated before, gained growing support.
- Generally, arrears accrue at contractual rates (with a potential penalty); treatment of arrears accumulated during the restructuring negotiation phase has varied.
- From April 2025 GSDR Cochairs Progress Report:
  - If the debtor country undertaking a debt restructuring is not in arrears to its official bilateral creditors, it can always present a request for a debt service suspension to its official bilateral creditors, with the decision subject to creditors’ approval and assessed on a case-by-case basis.
  - Work should continue on how to treat Past-Due Interest (PDI), which tend to be higher for private creditors than for official bilateral creditors, thus potentially affecting the CoT assessments depending on its calculation date.

### Support Provided by MDBs

- GSDR Principals reached in April 2023 a common understanding on the role of MDBs to support countries undertaking a debt restructuring through the provision of net positive flows of concessional finance and grants.
- Subsequent meetings explained how the International Development Association’s (IDA), for example, provides not only net positive flows, but also ex-ante implicit debt relief through increased concessionality and grants to countries facing higher risks of debt distress.
- Members underlined the importance of MDBs’ financial support.

*Source: 042325-gsdr-compendium-of-common-understanding-on-technical-issues-april-2025 - Section 2*

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_Source: https://www.imf.org/-/media/files/about/faq/gsdr/042325-gsdr-compendium-of-common-understanding-on-technical-issues-april-2025.pdf_