Working Paper: CEPR ID: DP5710
Authors: Marcus Miller; Dania Thomas
Abstract: 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.
Keywords: Collective Action Clauses; Holdout Creditors; Sovereign Debt Restructuring
JEL Codes: F34; K41; K49
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| judicial rulings (K41) | debtor behavior (D14) |
| delaying enforcement actions (G28) | successful debt swap (F34) |
| judicial threats (K40) | creditor behavior (G33) |
| judge's mediation (K41) | resolution of conflicts (D74) |