Advanced Search
MyIDEAS: Login

The contractual approach to sovereign debt restructuring

Contents:

Author Info

  • Lanau, Sergi

    ()
    (International Monetary Fund)

Abstract

The contractual approach proposes the introduction of clauses in sovereign debt contracts to address a number of inefficiencies in sovereign debt markets. Two of its central innovations are collective action clauses and seniority clauses. This paper analyses these two clauses when: (1) repayment is endogenous and depends on creditor lobbying effort; (2) litigation for full repayment does not increase the payment to be extracted from the creditor. There is a positive externality of effort that strongly interacts with asset distribution and contractual clauses. Individual litigation is not desirable from the creditors’ point of view since it weakens the incentives to exert effort. Collective action clauses block litigation and maximise repayment, especially when creditors are heterogeneous in the amount of debt they hold. The adoption of seniority clauses modifies the incentives to exert effort and thus repayment. This effect can be positive or negative. If average portfolio sizes are similar but the marginal loan being repaid is unevenly distributed among creditors, repayment falls. Since effort decisions are influenced by asset distribution, the paper also identifies and analyses a novel role for secondary markets.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2011/wp409.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 409.

as in new window
Length: 47 pages
Date of creation: 21 Feb 2011
Date of revision:
Handle: RePEc:boe:boeewp:0409

Contact details of provider:
Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Email:
Web page: http://www.bankofengland.co.uk/
More information through EDIRC

Related research

Keywords: Sovereign debt; collective action clauses; seniority clauses; secondary markets;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fernando Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign risk and secondary markets," Economics Working Papers 998, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2009.
  2. Törbjörn I. Becker & Anthony J. Richards & Yunyong Thaicharoen, 2001. "Bond Restructuring and Moral Hazard: Are Collective Action Clauses Costly?," IMF Working Papers 01/92, International Monetary Fund.
  3. Mark Gugiatti & Anthony Richards, 2003. "Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets," RBA Research Discussion Papers rdp2003-02, Reserve Bank of Australia.
  4. Eduardo Borensztein & Olivier Jeanne & Paolo Mauro & Jeromin Zettelmeyer & Marcos Chamon, 2005. "Sovereign Debt Structure for Crisis Prevention," IMF Occasional Papers 237, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Broner, Fernando A & Martin, Alberto & Ventura, Jaume, 2007. "Sovereign Risk and Secondary Markets," CEPR Discussion Papers 6055, C.E.P.R. Discussion Papers.
  2. Fernando Broner & Alberto Martin & Jaume Ventura & Aitor Erce, 2014. "Sovereign debt markets in turbulent times: creditor discrimination and crowding-out effects," Banco de Espa�a Working Papers 1402, Banco de Espa�a.
  3. Fernando Broner & Aitor Erce & Alberto Martin & Jaume Ventura, 2013. "Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out," IMF Working Papers 13/270, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0409. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.