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

By Jeromin Zettelmeyer, Marcos d Chamon, Ran Bi

November 1, 2011

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Jeromin Zettelmeyer, Marcos d Chamon, and Ran Bi. The Problem that Wasn't: Coordination Failures in Sovereign Debt Restructurings, (USA: International Monetary Fund, 2011) accessed November 8, 2024

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.

Subject: Asset and liability management, Bonds, Collective action clauses, Debt restructuring, Financial crises, Financial institutions, Sovereign debt restructuring

Keywords: Africa, Bargaining position, Bond contract, Bond series, Bonds, Collective action clauses, Creditor coordination, Debt exchange offers, Debt renegotiation model, Debt renegotiation process, Debt restructuring, Emerging market, Exit consents, Litigation prospect, Sovereign debt, Sovereign debt restructuring, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/265
Stock No:

WPIEA2011265
ISBN:

9781463924645
ISSN:

1018-5941

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