EconPapers    
Economics at your fingertips  
 

Writing-Down Debt with Heterogeneous Creditors: Lock Laws and Late Swaps

Sayantan Ghosal and Marcus Miller ()

Journal of Globalization and Development, 2015, vol. 6, issue 2, 239-255

Abstract: The presence of “holdouts” in recent sovereign debt swaps poses a challenge to bargaining models which assume all creditors to be homogeneous. We modify the Rubinstein “alternating offers” framework so as to accommodate exogenous creditor heterogeneity – specifically holdouts more patient than other bondholders. The “second best” equilibrium derived is an initial offer and an associated “lock-law” sufficient to tempt impatient creditors into a prompt bond exchange. This is followed by a delayed, but more generous, swap with the patient creditors, timed to take place when the lock-law expires. In practice, however, the presence of holdouts may be endogenous: they may be late-comers who buy distressed bonds with a view to litigating for the full face value plus their costs of waiting. Provisions for protecting other bond holders from the negative externality caused by such tactics are briefly discussed. However, where the judge has mandated good faith bargaining with holdout creditors, the bargaining outcome we derive may be useful to indicate a basis for compromise.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.degruyter.com/view/j/jgd.2015.6.issue- ... -0017.xml?format=INT (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Writing-down debt with heterogeneous creditors: lock laws and late swap (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:globdv:v:6:y:2015:i:2:p:239-255:n:2

Ordering information: This journal article can be ordered from
https://www.degruyter.com/view/j/jgd

Access Statistics for this article

More articles in Journal of Globalization and Development from De Gruyter
Bibliographic data for series maintained by Peter Golla ().

 
Page updated 2019-11-13
Handle: RePEc:bpj:globdv:v:6:y:2015:i:2:p:239-255:n:2