Seminar

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.