Structuring and Restructuring Sovereign Debt: The Role of Seniority

Patrick Bolton and Olivier Jeanne

No 4901, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In an environment characterized by weak contractual enforcement, sovereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure. We show within a simple model how competition for repayment between lenders may result in sovereign debt that is excessively difficult to restructure in equilibrium. Alleviating this inefficiency requires a sovereign debt restructuring mechanism that fulfills some of the functions of corporate bankruptcy regimes, in particular the enforcement of seniority and subordination clauses in debt contracts.

Keywords: Sovereign debt; Seniority; Debt dilution; Collective action clause; Sovereign default (search for similar items in EconPapers)
JEL-codes: F34 G15 (search for similar items in EconPapers)
Date: 2005-02
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Working Paper: Structuring and Restructuring Sovereign Debt: The Role of Seniority (2005)
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