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Author: Barry Eichengreen
Publisher: World Bank Publications
ISBN:
Category : Bonds
Languages : en
Pages : 22
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Book Description
Abstract: June 2000 - Collective action clauses raise borrowing costs for low-rated borrowers and lower them for high-rated borrowers. This result holds for all developing country bonds and also for the subset of sovereign bond issuers. It is easy to say that the International Monetary Fund should not resort to financial rescue for countries in crisis; this is hard to do when there is no alternative. That is where collective action clauses come in. Collective action clauses are designed to facilitate debt restructuring by the principals - borrowers and lenders - with minimal intervention by international financial institutions. Despite much discussion of this option, there has been little action. Issuers of bonds fear that collective action clauses would raise borrowing costs. Eichengreen and Mody update earlier findings about the impact of collective action clauses on borrowing costs. It has been argued that only in the past year or so have investors focused on the presence of these provisions and that, given the international financial institutions' newfound resolve to bail in investors, they now regard these clauses with trepidation. Extending their data to 1999, Eichengreen and Mody find no evidence of such changes but rather the same pattern as before: Collective action clauses raise the costs of borrowing for low-rated issuers but reduce them for issuers with good credit ratings. Their results hold both for the full set of bonds and for bonds issued only by sovereigns. They argue that these results should reassure those who regard collective action clauses as an important element in the campaign to strengthen international financial architecture. This paper - a product of the Development Prospects Group - is part of a larger effort in the group to analyze international capital flows. The study was funded by the Bank's Research Support Budget under the research project Pricing of Bonds and Bank Loans in the Market for Developing Country Debt. The authors may be contacted at eichengr@@econ.berkeley.edu or amody@@worldbank.org.
Author: Barry Eichengreen
Publisher: World Bank Publications
ISBN:
Category : Bonds
Languages : en
Pages : 22
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Book Description
Abstract: June 2000 - Collective action clauses raise borrowing costs for low-rated borrowers and lower them for high-rated borrowers. This result holds for all developing country bonds and also for the subset of sovereign bond issuers. It is easy to say that the International Monetary Fund should not resort to financial rescue for countries in crisis; this is hard to do when there is no alternative. That is where collective action clauses come in. Collective action clauses are designed to facilitate debt restructuring by the principals - borrowers and lenders - with minimal intervention by international financial institutions. Despite much discussion of this option, there has been little action. Issuers of bonds fear that collective action clauses would raise borrowing costs. Eichengreen and Mody update earlier findings about the impact of collective action clauses on borrowing costs. It has been argued that only in the past year or so have investors focused on the presence of these provisions and that, given the international financial institutions' newfound resolve to bail in investors, they now regard these clauses with trepidation. Extending their data to 1999, Eichengreen and Mody find no evidence of such changes but rather the same pattern as before: Collective action clauses raise the costs of borrowing for low-rated issuers but reduce them for issuers with good credit ratings. Their results hold both for the full set of bonds and for bonds issued only by sovereigns. They argue that these results should reassure those who regard collective action clauses as an important element in the campaign to strengthen international financial architecture. This paper - a product of the Development Prospects Group - is part of a larger effort in the group to analyze international capital flows. The study was funded by the Bank's Research Support Budget under the research project Pricing of Bonds and Bank Loans in the Market for Developing Country Debt. The authors may be contacted at eichengr@@econ.berkeley.edu or amody@@worldbank.org.
Author: Ashoka Mody
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
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Book Description
Collective action clauses raise borrowing costs for low-rated borrowers and lower them for high-rated borrowers. This result holds for all developing country bonds and also for the subset of sovereign bond issuers.It is easy to say that the International Monetary Fund should not resort to financial rescue for countries in crisis; this is hard to do when there is no alternative. That is where collective action clauses come in. Collective action clauses are designed to facilitate debt restructuring by the principals - borrowers and lenders - with minimal intervention by international financial institutions. Despite much discussion of this option, there has been little action. Issuers of bonds fear that collective action clauses would raise borrowing costs.Eichengreen and Mody update earlier findings about the impact of collective action clauses on borrowing costs. It has been argued that only in the past year or so have investors focused on the presence of these provisions and that, given the international financial institutions' newfound resolve to bail in investors, they now regard these clauses with trepidation.Extending their data to 1999, Eichengreen and Mody find no evidence of such changes but rather the same pattern as before: Collective action clauses raise the costs of borrowing for low-rated issuers but reduce them for issuers with good credit ratings. Their results hold both for the full set of bonds and for bonds issued only by sovereigns.They argue that these results should reassure those who regard collective action clauses as an important element in the campaign to strengthen international financial architecture.This paper - a product of the Development Prospects Group - is part of a larger effort in the group to analyze international capital flows. The study was funded by the Bank's Research Support Budget under the research project Pricing of Bonds and Bank Loans in the Market for Developing Country Debt. The authors may be contacted at
[email protected] or
[email protected].
Author: Kay Chung
Publisher:
ISBN: 9781513526843
Category :
Languages : en
Pages : 44
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Book Description
This paper analyzes the effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns' borrowing costs, using secondary-market bond yield spreads. Our findings indicate that inclusion of enhanced CACs, introduced in August 2014, is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers. These results suggest that market participants do not associate the use of CACs and enhanced CACs with borrowers' moral hazard, but instead consider their implied benefits of an orderly and efficient debt resolution process in case of restructuring.
Author: Michael Bradley
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
One of the primary policy initiatives instituted in response to the Eurozone sovereign debt crisis is a requirement that all Eurozone sovereign bonds issued after January 1, 2013 include provisions referred to as Collective Action Clauses or CACs. These CACs are intended to enable an orderly restructuring of distressed sovereign debt by allowing for a super-majority of creditors to impose restructuring terms on minority holdouts. This paper assesses the likely effect of this proposal on the borrowing costs of Eurozone countries. Economic theory makes ambiguous predictions: on the one hand, making debt easier (cheaper) to restructure could increase the propensity of governments to borrow irresponsibly, which would increase the cost of capital; on the other hand, if restructurings proceed more smoothly, creditors will receive a settlement more quickly, which would reduce the cost of capital. Since this is ultimately an empirical issue, we have assembled a database consisting of over 900 sovereign bonds, issued by more than 75 countries, from 1990 through 2010. Relying on this database we demonstrate that the majority of the existing literature is based on inadequate or inappropriate data, which has led researchers to conclude that the inclusion of a CAC either has no effect or increases the cost of capital for weaker nations and decreases the cost of capital for stronger ones. In contrast, we find that the presence of CACs leads to a lower, not higher, cost of capital, especially for below-investment grade bonds.
Author: Torbjörn Becker
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 48
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Book Description
Many official groups have endorsed the wider use by emerging market borrowers of contract clauses which allow for a qualified majority of bondholders to restructure repayment terms in the event of financial distress. Some have argued that such clauses will be associated with moral hazard and increased borrowing costs. This paper addresses this question empirically using primary and secondary market yields and finds no evidence that the presences of collective action clauses increases yields for either higher- or lower-rated issuers. By implication, the perceived benefits from easier restructuring are at least as large as any costs from increased moral hazard.
Author: Torbjorn Becker
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
Many official groups (such as the G-7, G-10 and G-22 groups of countries) have recently endorsed the wider use by emerging market borrowers of quot;collective action clausesquot;, (CACs) in bond contracts. These clauses allow for a qualified majority of bondholders to restructure repayment terms in the event of financial distress, and to make these changes binding on dissenting bondholders. Proponents of CACs maintain that facilitating restructuring can reduce deadweight losses and benefit both borrowers and lenders. However, some have argued that such clauses will be associated with moral hazard, more frequent restructurings, and increased borrowing costs.This paper examines the important and unresolved question of how CACs are viewed and priced by financial markets, and whether the benefits of more orderly restructuring might outweigh the possible effects of borrower moral hazard. The main innovation of this paper is that it is the first to do a systematic study of the secondary market yields of a large sample of bonds issued in international markets. Secondary market data allow the researcher to analyze the pricing of a large number of existing bonds at particular points in time, including before and after different events that may have caused a reassessment of the costs and benefits of bond contracts that include CACs. For comparison with some earlier studies, we also estimate equations using primary market data for yields at the time of issuance. We find no evidence that the presence of CACs increases yields for either higher- or lower-rated issuers. Hence, we conclude that the perceived benefits of lower restructuring costs associated with CACs are at least as large as any costs from increased moral hazard.
Author: International Monetary Fund. Policy Development and Review Dept.
Publisher: International Monetary Fund
ISBN: 1498328490
Category : Business & Economics
Languages : en
Pages : 30
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Book Description
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Author: Mr.Udaibir S. Das
Publisher: International Monetary Fund
ISBN: 1475505531
Category : Business & Economics
Languages : en
Pages : 128
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Book Description
This paper provides a comprehensive survey of pertinent issues on sovereign debt restructurings, based on a newly constructed database. This is the first complete dataset of sovereign restructuring cases, covering the six decades from 1950–2010; it includes 186 debt exchanges with foreign banks and bondholders, and 447 bilateral debt agreements with the Paris Club. We present new stylized facts on the outcome and process of debt restructurings, including on the size of haircuts, creditor participation, and legal aspects. In addition, the paper summarizes the relevant empirical literature, analyzes recent restructuring episodes, and discusses ongoing debates on crisis resolution mechanisms, credit default swaps, and the role of collective action clauses.
Author: Patrick S. Kenadjian
Publisher: Walter de Gruyter
ISBN: 3110314525
Category : Law
Languages : en
Pages : 280
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Book Description
The volume contains articles based on presentations given at a conference hosted by the Institute for Law and Finance of Goethe University on October 27, 2011. Collective action clauses are an example of the typical dichotomy of financial regulation: While the problems are economic in nature, the solutions need to be implemented by law. The Institute for Law and Finance strives to bring together law and finance in order to foster a better mutual understanding of both disciplines and to improve the regulation of financial markets. Thus, the organizers are particularly pleased that eminent experts from the fields of law and finance agreed to participate in the event and to share their views on and experiences with collective action clauses. The presentations given at the conference have been updated in 2012 to reflect recent developments.
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: International Monetary Fund
ISBN: 1498329616
Category : Business & Economics
Languages : en
Pages : 29
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Book Description
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