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Writing-down debt with heterogeneous creditors : lock laws and late swaps
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Ghosal, Sayantan and Miller, Marcus (2015) Writing-down debt with heterogeneous creditors : lock laws and late swaps. Journal of Globalization and Development, 6 (2). pp. 239-255. doi:10.1515/jgd-2015-0017 ISSN 1948-1837.
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Official URL: http://dx.doi.org/10.1515/jgd-2015-0017
Abstract
The presence of “holdouts” in recent sovereign debt swaps poses a challenge to bargaining models which assume all creditors to be homogeneous. We modify the Rubinstein “alternating offers” framework so as to accommodate exogenous creditor heterogeneity – specifically holdouts more patient than other bondholders. The “second best” equilibrium derived is an initial offer and an associated “lock-law” sufficient to tempt impatient creditors into a prompt bond exchange. This is followed by a delayed, but more generous, swap with the patient creditors, timed to take place when the lock-law expires. In practice, however, the presence of holdouts may be endogenous: they may be late-comers who buy distressed bonds with a view to litigating for the full face value plus their costs of waiting. Provisions for protecting other bond holders from the negative externality caused by such tactics are briefly discussed. However, where the judge has mandated good faith bargaining with holdout creditors, the bargaining outcome we derive may be useful to indicate a basis for compromise.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HJ Public Finance | ||||||||
Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Debts, Public, Swaps (Finance) | ||||||||
Journal or Publication Title: | Journal of Globalization and Development | ||||||||
Publisher: | Walter de Gruyter GmbH & Co. KG | ||||||||
ISSN: | 1948-1837 | ||||||||
Official Date: | 1 December 2015 | ||||||||
Dates: |
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Volume: | 6 | ||||||||
Number: | 2 | ||||||||
Page Range: | pp. 239-255 | ||||||||
DOI: | 10.1515/jgd-2015-0017 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 26 July 2018 | ||||||||
Date of first compliant Open Access: | 26 July 2018 |
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