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Pre-emptive sovereign debt restructuring and holdout litigation

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  • Kartik Anand
  • Prasanna Gai

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 prioritize 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 notion of a ‘Designer SDRM’.

Suggested Citation

  • Kartik Anand & Prasanna Gai, 2019. "Pre-emptive sovereign debt restructuring and holdout litigation," Oxford Economic Papers, Oxford University Press, vol. 71(2), pages 364-381.
    • Handle: RePEc:oup:oxecpp:v:71:y:2019:i:2:p:364-381.
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    2. Sayantan Ghosal & Marcus Miller, 2019. "Introduction to the special issue on sovereign debt restructuring," Oxford Economic Papers, Oxford University Press, vol. 71(2), pages 309-319.

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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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