Seminar
Participate
Department: Finance
Speaker: Stephane Guibaud (Sciences Po)
Room: TBD
The Aggregation Dilemma: How Best to Restructure Sovereign Bonds
Abstract
We consider the problem of a government who seeks to restructure multiple bond
series in the presence of last-generation collective action clauses, known as ‘enhanced’
CACs. We characterize how the heterogeneity of bondholders within and across series,
as well as the relative face values of the bonds, affect the optimal restructuring offer and
aggregated voting procedure. In equilibrium, a continuum of heterogeneous investors sort
into bonds with different characteristics, and bond-specific reservation value distributions
arise endogenously. Our analysis sheds light on the modification method employed by
Argentina and Ecuador in the restructuring of their international bonds in August 2020.
We also discuss the ongoing reform of euro area sovereign CACs in view of our results.