Bond Exchange Offers or Collective Action Clauses?

39 Pages Posted: 17 Jun 2019 Last revised: 14 Apr 2020

See all articles by Ulrich Hege

Ulrich Hege

Toulouse School of Economics; European Corporate Governance Institute (ECGI)

Pierre Mella-Barral

Toulouse Business School

Date Written: December 5, 2019


This paper examines two prominent approaches to design efficient mechanisms for debt renegotiation with dispersed bondholders: debt exchange offers that promise enhanced liquidation rights to a restricted number of tendering bondholders (favored under U.S. law), and collective action clauses that allow to alter core bond terms after a majority vote (favored under U.K. law). We use a dynamic contingent claims model with a debt overhang problem, where both hold-out and hold-in problems are present.

We show that the former leads to a more efficient mitigation of the debt overhang problem than the latter. Dispersed debt is desirable, as exchange offers also achieve a larger and more efficient debt reduction relative to debt held by a single creditor.

Keywords: Out-of-court restructuring, exchange offer, collective action clause, exit consent, hold-out problem, hold-in problem, Trust Indenture Act

JEL Classification: G12, G32, G33

Suggested Citation

Hege, Ulrich and Mella-Barral, Pierre, Bond Exchange Offers or Collective Action Clauses? (December 5, 2019). Available at SSRN: or

Ulrich Hege

Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
+33 5 61 12 86 01 (Phone)

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European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
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1000 Brussels

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Pierre Mella-Barral (Contact Author)

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068

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