Coordinating in the Haircut. A Model of Sovereign Debt Restructuring in Secondary Markets

Adriana Cobas

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: Despite the apparent advantages of bond financing, investors’ concessions in sovereign debt restructurings unexpectedly declined following market disintermediation. This paper develops a model in which dispersed bondholders face a coordination game during bond restructuring, and shows that this mechanism predicts lower haircuts. Empirical tests are consistent with this prediction, and a calibrated simulation indicates that coordination frictions can account for up to 25% of the observed reduction, highlighting that lowering participation costs can improve investor alignment and restructuring outcomes.

Date: 2026-03
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