IMF Working Papers

Sovereign Bond Restructuring: Collective Action Clauses and official Crisis Intervention

By Kenneth Kletzer

June 1, 2003

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Kenneth Kletzer. Sovereign Bond Restructuring: Collective Action Clauses and official Crisis Intervention, (USA: International Monetary Fund, 2003) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper compares the restructuring of sovereign bonds with and without collective action clauses. One conclusion is that collective action clauses can allow efficient debt renegotiation in a formal model of sovereign debt renegotiation while unanimity rules offer incentives for opportunistic behavior by bondholders that leads to inefficient outcomes. With collective action clauses, the mutual gains from renegotiation can be internalized by bondholders so that the holders of each bond issue have incentives to participate in a collective debt restructuring. The analysis abstracts from transactions costs, and the last conclusion might well be sensitive to renegotiation and coordination costs.

Subject: Asset and liability management, Bonds, Collective action clauses, Consumption, Debt renegotiation, Financial institutions, Loans, National accounts, Personal income

Keywords: Bonds, Borrower default, Borrower income, Borrower utility, Borrower's consumption, Collective action clauses, Debt renegotiation, International financial architecture, Lender B, Lender B's payoff, Lender exit, Lender surplus, Lender's participation constraint, Loans, Low income, Participation constraint, Personal income, Present value, Risk-neutral lender, Rollover option, Sovereign bond, Sovereign debt, WP

Publication Details

  • Pages:

    25

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2003/134

  • Stock No:

    WPIEA1342003

  • ISBN:

    9781451855623

  • ISSN:

    1018-5941

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