Engineering an Orderly Greek Debt Restructuring

11 Pages Posted: 27 Jan 2012 Last revised: 25 Dec 2014

See all articles by Mitu Gulati

Mitu Gulati

University of Virginia School of Law

Jeromin Zettelmeyer

European Bank for Reconstruction and Development (EBRD)

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Date Written: January 29, 2012

Abstract

For some months now, discussions over how Greece will restructure its debt have been constrained by the requirement that the deal be “voluntary” – implying that Greece would continue debt service to any creditors that choose retain their old bonds rather than tender them in an exchange offer. In light of Greece’s deep solvency problems and lack of agreement with its creditors so far, the notion of a voluntary debt exchange is increasingly looking like a mirage. In this essay, we describe and compare three alternative approaches that would achieve an orderly restructuring but avoid an outright default: (1) “retrofitting” and using a collective action clause (CAC) that would allow the vast majority of outstanding Greek government bonds to be restructured with the consent of a supermajority of creditors; (2) combining the use of a CAC with an exit exchange, in which consenting bondholders would receive a new English-law bond with standard creditor protections and lower face value; (3) an exit exchange in which a CAC would only be used if participation falls below a specified threshold. All three exchanges are involuntary in the sense that creditors that dissent or hold out are not repaid in full.

Keywords: sovereign debt

Suggested Citation

Gulati, Mitu and Zettelmeyer, Jeromin, Engineering an Orderly Greek Debt Restructuring (January 29, 2012). Available at SSRN: https://ssrn.com/abstract=1993037 or http://dx.doi.org/10.2139/ssrn.1993037

Mitu Gulati (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Jeromin Zettelmeyer

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

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