Quasi-Sovereign Creditors: A Threat to the Equal Status of Bondholders?
23 Pages Posted: 1 Aug 2014
Date Written: July 30, 2014
Sovereign bonds are actively traded in secondary markets and held by a broad community of creditors. The current profile of sovereign bondholders includes retail and institutional investors (banks, investment funds, pension funds, and insurance companies), also encompassing sovereign wealth funds, central banks, the IMF and similar organizations, as well as institutions like the ECB and the EIB. Bondholders have become increasingly diverse, numerous, anonymous and difficult to coordinate. To further complicate a common course of action, they might have conflicting interests, different drives and bargaining power, as well as significant information asymmetries.
The fragmentation of the bondholders’ profile may pose a host of complex issues to the development of a dedicated workout mechanism for the restructuring of sovereign bond debt. In particular, the challenges posed by “quasi-sovereign creditors” are yet to be carefully addressed. This term is used to describe international organizations (like the IMF and the IBRD) and supranational institutions (like the ECB) when they purchase sovereign bonds on the secondary market. These atypical sovereign bond investors are halfway between private retail investors and multilaterals providing financial assistance and they might pursue objectives other than mere profit.
The paper will address the question whether, in a debt restructuring, quasi-sovereign creditors should be treated equally to other bondholders or should be given priority.
Keywords: quasi-sovereign bondholders, pari passu, preferred creditor status
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