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

Jeromin Zettelmeyer, Marcos Chamon () and Ran Bi

No 2011/265, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; emerging market; debt exchange offers; bargaining position; litigation prospect; Sovereign debt; sovereign debt restructuring; exit consents; creditor coordination; bond series; debt renegotiation process; bond contract; debt renegotiation model; Bonds; Collective action clauses; Debt restructuring; Africa (search for similar items in EconPapers)
Pages: 28
Date: 2011-11-01
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Citations: View citations in EconPapers (8)

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Journal Article: The Problem that Wasn’t: Coordination Failures in Sovereign Debt Restructurings (2016)
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