Sovereign Bond Restructuring: Commitment vs. Flexibility

39 Pages Posted: 18 Feb 2021

See all articles by Jason Donaldson

Jason Donaldson

Washington University in St. Louis

Lukas Kremens

University of Washington

Giorgia Piacentino

Columbia University

Date Written: January 4, 2021

Abstract

Sovereigns in distress often engage in debt restructuring, typically negotiating with multiple classes of bondholders at once. We investigate whether sovereign bondholders benefit from committing not to restructure their debt. To do so, we use a court ruling that made one class of bonds easier to restructure. We find that, relative to a control group, not only did that class depreciate, so did other classes. We rationalize these findings with a model in which bondholders benefit from disciplining a sovereign with a willingness-to-pay problem.

Keywords: Restructuring, sovereign debt, hold-out problem, exchange offers

JEL Classification: H63, G34, F34

Suggested Citation

Donaldson, Jason and Kremens, Lukas and Piacentino, Giorgia, Sovereign Bond Restructuring: Commitment vs. Flexibility (January 4, 2021). Available at SSRN: https://ssrn.com/abstract=3761293 or http://dx.doi.org/10.2139/ssrn.3761293

Jason Donaldson

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Lukas Kremens

University of Washington ( email )

WA
United States

Giorgia Piacentino (Contact Author)

Columbia University ( email )

New York

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