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http://ssrn.com/abstract=1299114
 
 

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Individual Enforcement Rights in International Sovereign Bonds


Sönke Häseler


University of Hamburg

November 10, 2008


Abstract:     
Sovereign bond contracts are notoriously hard to enforce. The few rights that bondholders have can be vested either collectively or individually. It seems that investors traditionally had a preference for the latter, which hindered financial market reform projects, such as the universal adoption of collective action clauses or trust structures.

This paper discusses theoretically and empirically whether it is indeed in the bondholders’ collective interest to be allowed to individually sue and attach the debtor country’s assets following a default. Market reaction to the landmark case of Elliott Associates v. Peru is tested to assess just how much bondholders actually value individual enforcement rights. It is found that even the single most important event to reinforce creditor rights in recent years provoked no systematic movement in bond prices. We thus conclude that perhaps the importance of individual enforcement rights to the markets has been exaggerated and we therefore recommend ignoring any opposition from market participants that may arise during the necessary transition to more collective enforcement rights.

Number of Pages in PDF File: 27

Keywords: sovereign debt, collective action clauses, fiscal agency agreements, trustees

JEL Classification: G12, F34, K12

working papers series


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Date posted: November 13, 2008 ; Last revised: October 31, 2011

Suggested Citation

Häseler, Sönke, Individual Enforcement Rights in International Sovereign Bonds (November 10, 2008). Available at SSRN: http://ssrn.com/abstract=1299114 or http://dx.doi.org/10.2139/ssrn.1299114

Contact Information

Sönke Häseler (Contact Author)
University of Hamburg ( email )
Institute of Law and Economics
Johnsallee 36
20148 Hamburg
Germany
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