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Steven L. Schwarcz - One of the best experts on this subject based on the ideXlab platform.
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A Model-law Approach to Sovereign Debt Restructuring
2017Co-Authors: Steven L. SchwarczAbstract:Unresolved sovereign Debt problems and disruptive litigation are hurting Debtor nations and their citizens, as well as their creditors. A default can also pose a serious systemic threat to the international financial system. Yet the existing “contractual” approach to sovereign Debt Restructuring, including the use of so-called collective action clauses, is insufficient to solve the holdout problem; recent empirical research indeed shows a drastic rise in sovereign Debt litigation by holdout creditors. And the political economy of treaty-making makes a multilateral “statutory” approach highly unlikely to succeed in the near future. This article, prepared at the invitation of the United Nations Commission on International Trade Law (UNCITRAL) for presentation at its 50th Anniversary Congress, shows why a model-law approach to sovereign Debt Restructuring should be realistic and effective. Nations and even subnational jurisdictions could individually enact a model law as their internal law, and contracts governed by that law would thereby become governed by the model law. Choice of law thus gives a model-law approach a powerful multiplier effect. A model-law approach could also solve the problem of pari passu clauses and address the critical need for a financially troubled nation to obtain liquidity during its Restructuring process. The article proposes a form of Sovereign Debt Restructuring Model Law, which has been vetted in discussions with leading experts worldwide and also embraces the Basic Principles on Sovereign Debt Restructuring Processes adopted by the United Nations General Assembly in 2015. At the very least, pursuing the Model Law in parallel to other approaches would help to develop norms for a sovereign Debt Restructuring legal framework that goes beyond mere contracting.
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Sovereign Debt Restructuring and English Governing Law
The Brooklyn Journal of Corporate Financial and Commercial Law, 2017Co-Authors: Steven L. SchwarczAbstract:Whether or not their fault, nations sometimes borrow at levels that become unsustainable. Until resolved, the resulting Debt burden hurts not only those nations but also their citizens, their creditors, and — by posing serious systemic risks to the international financial system — the wider economic community. The existing contractual framework for Restructuring sovereign Debt is inadequate, often leaving little alternative between a bailout, which is costly and creates moral hazard, and a default, which raises the specter of financial contagion and chaos. Although global organizations, including the United Nations and the International Monetary Fund, have tried to strengthen the sovereign-Debt-Restructuring framework through treaties, such a multilateral legal approach is highly unlikely to succeed in the near future. This essay argues that a model-law approach should facilitate sovereign Debt Restructuring much more feasibly than a multilateral approach. Model laws have long been used in cross-border lawmaking, when treaties fail. Unlike a treaty, a model law does not require widespread acceptance for its implementation. In particular, if this essay’s model law were enacted into English law, that alone would enable the fair and consensual Restructuring of the immense stock — perhaps a quarter to a third or more of all sovereign Debt contracts — of such contracts governed by that law. And because it would achieve, by operation of law, the equivalent of the ideal goal of including aggregate-voting collective action clauses in all sovereign Debt contracts, such enactment should ensure the continuing legitimacy and attractiveness of English law as the governing law for future sovereign Debt contracts. At the very least, however, this essay should serve to increase a model-law approach’s political feasibility by explaining the approach and its potential benefits and limitations. An incremental approach to developing norms, such as one developed through a model law, has strong precedent in the legal ordering of international relationships.
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Sovereign Debt Restructuring: A Model-Law Approach
SSRN Electronic Journal, 2015Co-Authors: Steven L. SchwarczAbstract:Unlike individuals and corporations, countries inDebted beyond their ability to pay cannot use bankruptcy laws to restructure unsustainable Debt. The United Nations and the International Monetary Fund have attempted to propose treaties to enable that Debt Restructuring, but the political difficulties of reaching a worldwide consensus have stymied their efforts. This article argues that a model-law approach to Restructuring unsustainable sovereign Debt should be feasible and effective because the vast majority of sovereign Debt contracts are governed by the laws of either the Debtor-state or two other jurisdictions. Those jurisdictions individually could enact a model law to give struggling nations a real prospect of equitably Restructuring their Debt to sustainable levels. By enabling such Debt Restructuring, that enactment would also help to foster the norms required to facilitate the development of international treaties.
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Sovereign Debt Restructuring Options: An Analytical Comparison
2011Co-Authors: Steven L. SchwarczAbstract:The recent financial woes of Greece, Ireland, Portugal, and other nations have reinvigorated the debate over whether to bail out defaulting countries or, instead, restructure their Debt. Bailouts are expensive, both for residents of the nation being bailed out and for parties providing the bailout funds. Because the IMF, which is subsidized by most nations (including the United States), is almost always involved in country Debt bailouts, we all share the burden. Yet bailouts are virtually inevitable under the existing international framework; defaults are likely to have systemic consequences, whereas an orderly Debt Restructuring is currently impractical. This Article analyzes and compares Debt Restructuring alternatives to bailouts. Under a free-market option, sovereign Debtors and their creditors attempt to consensually negotiate a Debt Restructuring, aided by collective-action clauses and by exchange offers with exit consents. Under a statutory option, sovereign Debtors and their creditors would be bound by an international convention that sets forth a process to facilitate Debt Restructuring. The absence of any systematic comparison of these options has made it difficult to facilitate country Debt Restructurings. This article attempts to provide that comparison.
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'Idiot's Guide' to Sovereign Debt Restructuring
SSRN Electronic Journal, 2004Co-Authors: Steven L. SchwarczAbstract:This essay attempts to achieve the same goal for the complex and confusing topic of sovereign Debt Restructuring that the "Idiot's Guide" series of books achieve for their covered topics: to provide a systematic, accessible, and easy-to-grasp overview, so that readers can understand issues in context and go on to more advanced study. The essay also compares and contrasts public-law and private-law approaches to sovereign Debt Restructuring.
Mark L. J. Wright - One of the best experts on this subject based on the ideXlab platform.
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Deconstructing Delays in Sovereign Debt Restructuring
Oxford Economic Papers, 2018Co-Authors: David Benjamin, Mark L. J. WrightAbstract:Negotiations to restructure sovereign Debt are time consuming, taking almost a decade on average to resolve. In this paper, we analyze a class of widely used complete information models of delays in sovereign Debt Restructuring and show that, despite superficial similarities, there are major differences across models in the driving force for equilibrium delay, the circumstances in which delay occurs, and the efficiency of the Debt Restructuring process. We focus on three key assumptions. First, if delay has a permanent effect on economic activity in the defaulting country, equilibrium delay often occurs; this delay can sometimes be socially efficient. Second, prohibiting Debt issuance as part of a settlement makes delay less likely to occur in equilibrium. Third, when Debt issuance is not fully state contingent, delay can arise because of the risk that the sovereign will default on any Debt issued as part of the settlement.
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Restructuring the sovereign Debt Restructuring mechanism
2008 Meeting Papers, 2008Co-Authors: Mark L. J. Wright, Rohan PitchfordAbstract:Sovereign defaults are time consuming and costly to resolve ex post. But these costs also improve borrowing incentives ex ante. What is the optimal tradeoff between efficient borrowing ex ante and the costs of default ex post? What policy reforms, from collective action clauses to an international bankruptcy court, would attain this optimal tradeoff? Towards an answer to these questions, this paper presents a simple incomplete markets model of sovereign borrowing that is coupled with an explicit and flexible model of the sovereign Debt Restructuring process. We characterize the optimal amount of delay, and explore numerically the effects of various policy options on the amount of delay in renegotiations, and on the efficiency of capital flows.
Marcus Miller - One of the best experts on this subject based on the ideXlab platform.
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waiting for a haircut a bargaining perspective on sovereign Debt Restructuring
Oxford Economic Papers, 2019Co-Authors: Sayantan Ghosal, Marcus Miller, Kannika ThampanishvongAbstract:Recent investigation of sovereign Debt negotiations finds that prompt, market-friendly "reprofiling" often fails to achieve sustainability; but serious Debt Restructuring typically involves delay. We develop an incomplete information bargaining model to account for this, highlighting economic recovery and sustainability considerations as complementary reasons for delay. Some recent settlements are discussed, along with some policy implications of excessive profiling.
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sovereign Debt Restructuring the judge the vultures and creditor rights
The World Economy, 2007Co-Authors: Marcus Miller, Dania ThomasAbstract:What role did the US courts play in the Argentine Debt swap of 2005? What are the implications for the future of creditor rights in sovereign bond markets? The judge in the Argentine case has, it appears, deftly exploited creditor heterogeneity – between holdouts seeking capital gains and institutional investors wanting a settlement – to promote a swap with a supermajority of 76% of creditors. Our analysis of Argentine Debt litigation reveals a process of 'judge-mediated' sovereign Debt Restructuring, which resolves the key issues of Transition and Aggregation - two of the roles envisaged for the IMF's still-born Sovereign Debt Restructuring Mechanism (SDRM). For the future we note how the judge-mediated sovereign Debt Restructuring, together with creditor committees, may complement the market-based alternative promoted by the Treasury, namely collective action clauses (CACs) in sovereign bond contracts.
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Sovereign Debt: From Safety to Default - Sovereign Debt Restructuring: The Judge, the Vultures and Creditor Rights
The World Economy, 2007Co-Authors: Marcus Miller, Dania ThomasAbstract:What role did the US courts play in the Argentine Debt swap of 2005? What are the implications for the future of creditor rights in sovereign bond markets? The judge in the Argentine case has, it appears, deftly exploited creditor heterogeneity – between holdouts seeking capital gains and institutional investors wanting a settlement – to promote a swap with a supermajority of 76% of creditors. Our analysis of Argentine Debt litigation reveals a process of 'judge-mediated' sovereign Debt Restructuring, which resolves the key issues of Transition and Aggregation - two of the roles envisaged for the IMF's still-born Sovereign Debt Restructuring Mechanism (SDRM). For the future we note how the judge-mediated sovereign Debt Restructuring, together with creditor committees, may complement the market-based alternative promoted by the Treasury, namely collective action clauses (CACs) in sovereign bond contracts.
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Sovereign Debt Restructuring: the Judge, the vultures and creditor rights
2006Co-Authors: Marcus Miller, Dania ThomasAbstract:What role did the US courts play in the Argentine Debt swap of 2005? What implications does this have for the future of creditor rights in sovereign bond markets? The judge in the Argentine case has, it appears, deftly exploited creditor heterogeneity – between holdouts seeking capital gains and institutional investors wanting a settlement – to promote a swap with a supermajority of creditors. Our analysis of Argentine Debt litigation reveals a ‘judge-mediated’ sovereign Debt Restructuring, which resolves the key issues of Transition and Aggregation - two of the tasks envisaged for the IMF’s still-born Sovereign Debt Restructuring Mechanism. For the future, we discuss how judge-mediated sovereign Debt Restructuring (together with creditor committees) could complement the alternative promoted by the US Treasury, namely collective action clauses in sovereign bond contracts.
Kannika Thampanishvong - One of the best experts on this subject based on the ideXlab platform.
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waiting for a haircut a bargaining perspective on sovereign Debt Restructuring
Oxford Economic Papers, 2019Co-Authors: Sayantan Ghosal, Marcus Miller, Kannika ThampanishvongAbstract:Recent investigation of sovereign Debt negotiations finds that prompt, market-friendly "reprofiling" often fails to achieve sustainability; but serious Debt Restructuring typically involves delay. We develop an incomplete information bargaining model to account for this, highlighting economic recovery and sustainability considerations as complementary reasons for delay. Some recent settlements are discussed, along with some policy implications of excessive profiling.
Singh Dalvinder - One of the best experts on this subject based on the ideXlab platform.
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Part III Sovereign Debt Restructuring, 12 Transactional Aspects of Sovereign Debt Restructuring
Debt Restructuring, 2016Co-Authors: Olivares-caminal Rodrigo, Douglas John, Guynn Randall, Kornberg Alan, Paterson Sarah, Singh DalvinderAbstract:This chapter details the transactional aspects of sovereign Debt Restructuring. The amount of accumulated Debt and its progressive increase have led to repayment problems for some countries and, in some cases, resulted in default. Therefore, as countries amass unsustainable Debt burdens (as happens when the ratio of Debt to gross domestic product rises to such an extent that the application of policies cannot revert the situation), they have an increasing need to restructure their sovereign Debt. Sovereign Debt Restructuring can be understood as the technique used by sovereign states to prevent or resolve financial and economic crises and to achieve Debt sustainability levels. The IMF has reviewed its lending framework in the context of sovereign Debt vulnerabilities. It is hoping to introduce greater flexibility and be able to provide exceptional access to funding on the base of a Debt operation that involves an extension of maturities.
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Part III Sovereign Debt Restructuring, 10 An Introduction to Sovereign Debt Restructuring
Debt Restructuring, 2016Co-Authors: Olivares-caminal Rodrigo, Douglas John, Guynn Randall, Kornberg Alan, Paterson Sarah, Singh DalvinderAbstract:This chapter starts by introducing the Brady Plan which aimed to address the Debt crisis that occurred in the developing countries during the 1980s. The chapter also looks at new developments which have taken place in the area of sovereign Debt Restructuring since the Brady Plan. These are the EU sovereign Debt crisis, and the ongoing Argentine litigation in New York. The former is a Debt crisis that was originated in Greece in late 2009 and has been taking place in other Euro-areas ever since and has affected Portugal, Ireland, Spain, and Cyprus. The ongoing Argentine litigation in New York relates to a claim initiated by a hedge fund to collect on defaulted Debt obligations issued by Argentina based on the breach of the pari passu clause. The pari passu clause is a standard clause in public or private international unsecured Debt obligations.
