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

Author/Editor:

Jeronimo Zettelmeyer ; Marcos d Chamon ; Ran Bi

Publication Date:

November 1, 2011

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 11/265

Subject:

Frequency:

Biannually

English

Publication Date:

November 1, 2011

ISBN/ISSN:

9781463924645/1018-5941

Stock No:

WPIEA2011265

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

28

Please address any questions about this title to publications@imf.org