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Collective Action Clauses and the Restructuring of Sovereign Debt

Collective Action Clauses and the Restructuring of Sovereign Debt PDF Author: Patrick S. Kenadjian
Publisher: Walter de Gruyter
ISBN: 3110314525
Category : Law
Languages : en
Pages : 278

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Book Description
The volume contains articles based on presentations given at a conference hosted by the Institute for Law and Finance of Goethe University on October 27, 2011. Collective action clauses are an example of the typical dichotomy of financial regulation: While the problems are economic in nature, the solutions need to be implemented by law. The Institute for Law and Finance strives to bring together law and finance in order to foster a better mutual understanding of both disciplines and to improve the regulation of financial markets. Thus, the organizers are particularly pleased that eminent experts from the fields of law and finance agreed to participate in the event and to share their views on and experiences with collective action clauses. The presentations given at the conference have been updated in 2012 to reflect recent developments.

Collective Action Clauses and the Restructuring of Sovereign Debt

Collective Action Clauses and the Restructuring of Sovereign Debt PDF Author: Patrick S. Kenadjian
Publisher: Walter de Gruyter
ISBN: 3110314525
Category : Law
Languages : en
Pages : 278

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Book Description
The volume contains articles based on presentations given at a conference hosted by the Institute for Law and Finance of Goethe University on October 27, 2011. Collective action clauses are an example of the typical dichotomy of financial regulation: While the problems are economic in nature, the solutions need to be implemented by law. The Institute for Law and Finance strives to bring together law and finance in order to foster a better mutual understanding of both disciplines and to improve the regulation of financial markets. Thus, the organizers are particularly pleased that eminent experts from the fields of law and finance agreed to participate in the event and to share their views on and experiences with collective action clauses. The presentations given at the conference have been updated in 2012 to reflect recent developments.

Sovereign Bond Restructuring

Sovereign Bond Restructuring PDF Author: Kenneth Kletzer
Publisher: International Monetary Fund
ISBN: 1451855621
Category : Business & Economics
Languages : en
Pages : 25

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Book Description
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.

Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring

Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring PDF Author:
Publisher: International Monetary Fund
ISBN: 1498342795
Category : Business & Economics
Languages : en
Pages : 48

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Book Description
This paper identifies contractual reforms designed to address collective action problems in sovereign debt restructuring. Since any decisions regarding the design of contractual provisions will need to be made by the sovereign issuer and its creditors, it is recognized that the Fund’s primary role will be to facilitate agreement on the design and use of these provisions.

Sovereign Bond Restructuring

Sovereign Bond Restructuring PDF Author: Kenneth M. Kletzer
Publisher:
ISBN:
Category :
Languages : en
Pages : 25

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Book Description
This paper discusses the collective action problem in sovereign debt restructurings using a benchmark model of sovereign debt renegotiation. It considers the welfare comparison of outcomes sustainable under collective action clauses and under governing law that requires the unanimous agreement of bondholders to repayment revisions. One conclusion is that collective action clauses allow the implementation of an efficient renegotiation equilibrium for the model economy while unanimity rules provide incentives for opportunistic behavior by individual bondholders that leads to inefficient outcomes. The potential role for a multilateral sovereign debt restructuring mechanism (SDRM) is also discussed. It is argued that the establishment of an official international bankruptcy tribunal that collectively restructures all of a country's debt may not improve upon the universal adoption of collective action clauses for sovereign bond issues. With collective action clauses, mutual gains from collective renegotiation are internalized so that sufficient incentives exist for the private formation of bondholder councils to restructure various debt issues together. The approach abstracts from transactions costs, and the last conclusion might well be sensitive to renegotiation and coordination costs.

A New Approach to Sovereign Debt Restructuring

A New Approach to Sovereign Debt Restructuring PDF Author: Anne O. Krueger
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 40

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Book Description
In recent years there has been extensive discussion inside and outside the IMF on the need to develop a new approach to sovereign debt restructuring. Exploring ways to improve the sovereign debt restructuring process is a key part of the international community’s efforts to strengthen the architecture of the global financial system. This pamphlet by IMF First Deputy Managing Director Anne O.Krueger draws together the latest IMF thinking on the controversial issue in a single publication.

Would Collective Action Clauses Raise Borrowing Costs?

Would Collective Action Clauses Raise Borrowing Costs? PDF Author: Barry Eichengreen
Publisher: World Bank Publications
ISBN:
Category : Bonds
Languages : en
Pages : 22

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Book Description
Abstract: June 2000 - Collective action clauses raise borrowing costs for low-rated borrowers and lower them for high-rated borrowers. This result holds for all developing country bonds and also for the subset of sovereign bond issuers. It is easy to say that the International Monetary Fund should not resort to financial rescue for countries in crisis; this is hard to do when there is no alternative. That is where collective action clauses come in. Collective action clauses are designed to facilitate debt restructuring by the principals - borrowers and lenders - with minimal intervention by international financial institutions. Despite much discussion of this option, there has been little action. Issuers of bonds fear that collective action clauses would raise borrowing costs. Eichengreen and Mody update earlier findings about the impact of collective action clauses on borrowing costs. It has been argued that only in the past year or so have investors focused on the presence of these provisions and that, given the international financial institutions' newfound resolve to bail in investors, they now regard these clauses with trepidation. Extending their data to 1999, Eichengreen and Mody find no evidence of such changes but rather the same pattern as before: Collective action clauses raise the costs of borrowing for low-rated issuers but reduce them for issuers with good credit ratings. Their results hold both for the full set of bonds and for bonds issued only by sovereigns. They argue that these results should reassure those who regard collective action clauses as an important element in the campaign to strengthen international financial architecture. This paper - a product of the Development Prospects Group - is part of a larger effort in the group to analyze international capital flows. The study was funded by the Bank's Research Support Budget under the research project Pricing of Bonds and Bank Loans in the Market for Developing Country Debt. The authors may be contacted at [email protected]@econ.berkeley.edu or [email protected]@worldbank.org.

Collective Action Clauses in Sovereign Bond Contracts - Encouraging Greater Use

Collective Action Clauses in Sovereign Bond Contracts - Encouraging Greater Use PDF Author: International Monetary Fund. Policy Development and Review Dept.
Publisher: International Monetary Fund
ISBN: 1498328490
Category : Business & Economics
Languages : en
Pages : 29

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Book Description


You Never Give Me Your Money? Sovereign Debt Crises, Collective Action Problems, and IMF Lending

You Never Give Me Your Money? Sovereign Debt Crises, Collective Action Problems, and IMF Lending PDF Author: Mr. Marco Committeri
Publisher: International Monetary Fund
ISBN: 1475533829
Category : Business & Economics
Languages : en
Pages : 50

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Book Description
We review the impact of the global financial crisis, and its spillovers into the sovereign sector of the euro area, on the international “rules of the game” for dealing with sovereign debt crises. These rules rest on two main pillars. The most important is the IMF’s lending framework (policies, financing facilities, and financial resources), which is designed to support macroeconomic adjustment packages based on the key notion of public debt sustainability. The complementary pillar is represented by such contractual provisions as Collective Action Clauses (CACs) in sovereign bonds, which aim to facilitate coordination among private creditors in order to contain the costs of a debt default or restructuring. We analyze the most significant changes (and their consequences) prompted by the recent crises to the Fund’s lending framework, not only in terms of additional financial resources, new financing facilities (including precautionary ones), and cooperation with euro-area institutions, but also as regards the criteria governing exceptional access to the Fund’s financial resources. We highlight a crucial innovation to these criteria, namely that, for the first time, they now explicitly take account of the risk of international systemic spillovers. Finally, we discuss how the recent crises have provided new political support for a broader dissemination of CACs in euro-area sovereign bonds. Importantly, in the first case involving an advanced economy, CACs were activated in the debt exchange undertaken by Greece in Spring 2012.

Collective Action Clauses in the Euro Area

Collective Action Clauses in the Euro Area PDF Author: Christoph Grosse Steffen
Publisher:
ISBN:
Category :
Languages : en
Pages : 21

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Book Description
This paper reviews the first five years of experience with Collective Action Clauses (CACs) for European sovereign debt, focusing on both the legal and the economic dimension. First, we present a chronology of the legislative acts to incorporate CACs in European sovereign debt contracts alongside landmark lawsuits that have challenged their viability in the context of the Greek government debt restructuring of 2012. Second, we find in an empirical analysis that the introduction of CACs and related lawsuits had limited effects on sovereign bond pricing, both around the time of their announcement as well as in the time since. Based on this treatment of CACs in European courts and on financial markets, we conclude that the gradual and ex-ante reform approach was less risky than relying on potential ex-post action.

Progress Report on Inclusion of Enhanced Contractual Provisions in International Sovereign Bond Contracts

Progress Report on Inclusion of Enhanced Contractual Provisions in International Sovereign Bond Contracts PDF Author:
Publisher: International Monetary Fund
ISBN: 1498344216
Category : Business & Economics
Languages : en
Pages : 20

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Book Description
As part of the Fund’s ongoing work on sovereign debt restructuring, in October 2014 the Executive Board endorsed the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds.1 Specifically, the Executive Board endorsed the use of: (i) a modified pari passu clause that explicitly excludes the obligation to effect ratable payments and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” voting procedure that enables bonds to be restructured on the basis of a single vote across all affected instruments, a two-limb aggregated voting procedure and a series-by-series voting procedure.