{
  "title": "Sovereign Bond Restructuring: Collective Action Clauses and official Crisis Intervention",
  "publication": "IMF Working Papers, June 1, 2003",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/sovereign-bond-restructuring-collective-action-clauses-and-official-crisis-intervention-16571",
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  "summary": "This paper compares the restructuring of sovereign bonds with and without collective action clauses. One conclusion is that collective action clauses can allow efficient debt renegotiation in a formal model of sovereign debt renegotiation while unanimity rules offer incentives for opportunistic beha",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Compares restructuring of sovereign bonds with and without collective action clauses.\n- Concludes that collective action clauses can allow efficient debt renegotiation in a formal model of sovereign debt renegotiation.\n- Finds that unanimity rules offer incentives for opportunistic behavior by bondholders that leads to inefficient outcomes.\n- With collective action clauses, mutual gains from renegotiation can be internalized by bondholders so holders of each bond issue have incentives to participate in a collective debt restructuring.\n- Analysis abstracts from transactions costs; the conclusion about collective action clauses may be sensitive to renegotiation and coordination costs."
    },
    {
      "heading": "Key findings",
      "content": "- Collective action clauses permit efficient debt renegotiation in the formal model used.\n- Unanimity rules create incentives for opportunistic bondholder behavior and inefficient outcomes.\n- Collective action clauses help internalize mutual gains so each bond-issue holder has incentives to participate in restructuring.\n- The analysis does not incorporate transactions costs; sensitivity to renegotiation and coordination costs is explicitly noted."
    },
    {
      "heading": "Policy implications and considerations",
      "content": "- Adoption of collective action clauses can facilitate collective debt restructurings by aligning incentives of bondholders.\n- Policymakers should consider the role of transactions, renegotiation, and coordination costs when assessing the practical effectiveness of collective action clauses.\n- Unanimity-based provisions may encourage opportunistic holdout behavior and undermine efficient restructuring outcomes."
    },
    {
      "heading": "Methodology and scope",
      "content": "- Uses a formal model of sovereign debt renegotiation.\n- Abstracts from transactions costs, implying results may differ when such costs are considered."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subjects: Asset and liability management; Bonds; Collective action clauses; Consumption; Debt renegotiation; Financial institutions; Loans; National accounts; Personal income\n- Keywords: Bonds; borrower default; borrower income; borrower utility; borrower's consumption; collective action clauses; Debt renegotiation; international financial architecture; lender B; lender B's payoff; lender exit; lender surplus; lender's participation constraint; Loans; low income; participation constraint; Personal income; present value; risk-neutral lender; rollover option; sovereign bond; sovereign debt; WP\n\n---\n\n Content in this bundle\n\n- Sovereign Bond Restructuring: Collective Action Clauses and Official Crisis Intervention - WP/03/134\n  - Sovereign Bond Restructuring: Collective Action Clauses and Official Crisis Intervention - WP/03/134 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Sovereign Bond Restructuring: Collective Action Clauses and Official Crisis Intervention - WP/03/134 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/sovereign-bond-restructuring-collective-action-clauses-and-official-crisis-intervention-16571"
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    "Authors: Kenneth Kletzer",
    "Published: June 1, 2003",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451855623.001",
    "Compares restructuring of sovereign bonds with and without collective action clauses.",
    "Concludes that collective action clauses can allow efficient debt renegotiation in a formal model of sovereign debt renegotiation.",
    "Finds that unanimity rules offer incentives for opportunistic behavior by bondholders that leads to inefficient outcomes.",
    "With collective action clauses, mutual gains from renegotiation can be internalized by bondholders so holders of each bond issue have incentives to participate in a collective debt restructuring.",
    "Analysis abstracts from transactions costs; the conclusion about collective action clauses may be sensitive to renegotiation and coordination costs.",
    "Collective action clauses permit efficient debt renegotiation in the formal model used.",
    "Unanimity rules create incentives for opportunistic bondholder behavior and inefficient outcomes.",
    "Collective action clauses help internalize mutual gains so each bond-issue holder has incentives to participate in restructuring.",
    "The analysis does not incorporate transactions costs; sensitivity to renegotiation and coordination costs is explicitly noted.",
    "Adoption of collective action clauses can facilitate collective debt restructurings by aligning incentives of bondholders.",
    "Policymakers should consider the role of transactions, renegotiation, and coordination costs when assessing the practical effectiveness of collective action clauses.",
    "Unanimity-based provisions may encourage opportunistic holdout behavior and undermine efficient restructuring outcomes.",
    "Uses a formal model of sovereign debt renegotiation.",
    "Abstracts from transactions costs, implying results may differ when such costs are considered.",
    "Subjects: Asset and liability management; Bonds; Collective action clauses; Consumption; Debt renegotiation; Financial institutions; Loans; National accounts; Personal income",
    "Keywords: Bonds; borrower default; borrower income; borrower utility; borrower's consumption; collective action clauses; Debt renegotiation; international financial architecture; lender B; lender B's payoff; lender exit; lender surplus; lender's participation constraint; Loans; low income; participation constraint; Personal income; present value; risk-neutral lender; rollover option; sovereign bond; sovereign debt; WP",
    "**Sovereign Bond Restructuring: Collective Action Clauses and Official Crisis Intervention - WP/03/134**"
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