The Problem that Wasn't: Coordination Failures in Sovereign Debt Restructurings
IMF Working Papers, November 1, 2011
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- The Problem that Wasn't: Coordination Failures in Sovereign Debt Restructurings
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Bibliographic details
- Authors: Jeromin Zettelmeyer, Marcos Chamon, Ran Bi
- Published: November 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463924645.001
Key findings and interpretations
- Contrary to widespread expectation, debt renegotiations in the era of bond finance have generally been quick and involved little litigation.
- When the exchange offer is sufficiently attractive vis-à-vis holding out, full participation can be an equilibrium.
- Legal innovations helped coordinate creditors and avoid litigation:
- Minimum participation thresholds.
- Defensive exit consents.
- Exit consents differ from CACs:
- Unlike CACs, exit consents can be exploited to force high haircuts on creditors.
- The ability of creditors to coordinate to block exit consents can limit overly aggressive use.
Model and analytical contribution
- Presents a model that rationalizes initial fears of coordination failure and offers interpretations for why those fears did not materialize.
- Interprets the role of bond contract features and creditor coordination mechanisms in enabling swift restructurings with limited litigation.
Subject coverage and keywords
- Subjects: Asset and liability management, Bonds, Collective action clauses, Debt restructuring, Financial crises, Financial institutions, Sovereign debt restructuring.
- Keywords include: 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.