Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180674
Authors: 
Anand, Kartik
Gai, Prasanna
Year of Publication: 
2018
Series/Report no.: 
Bundesbank Discussion Paper 21/2018
Abstract: 
We offer an analytical framework for studying "pre-emptive" debt exchanges. Countries can tailor a sovereign bankruptcy framework by choosing provisions (or "haircuts") ex ante, but must contend with the market discipline of holdout litigation ex post. Secondary markets play a role in shaping the holdout costs facing the sovereign, and our results suggest that it is optimal to prioritise the rights of holdout creditors during litigation so that they are always paid in full. We clarify how macroeconomic and legal factors influence the choice of haircut. Our model contributes to the debate on sovereign debt restructuring by formalizing Bolton and Skeel's (2004) notion of a "Designer SDRM".
Subjects: 
sovereign debt restructuring
holdout creditors
bankruptcy procedures
absolute priority
JEL: 
F34
F55
G33
K4
ISBN: 
978-3-95729-469-2
Document Type: 
Working Paper

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