Asonuma, tamon

Sovereign Debt Restructurings: Global Prospects and Implications for Future Cases Tamon Asonuma IMF

February 23, 2018

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Sovereign Debt Restructurings

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Disclaimer

The views expressed herein are those of the authors and should not be attributed to the IMF, its Exercutive Board, or its management.

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Sovereign Debt Restructurings

February 23, 2018

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Two Important Aspects of Sovereign Debt Restructurings

Preemptive and post-default restructurings Asonuma and Trebesch (2016, JEEA)

Sovereign bond prices, haircuts and maturity Asonuma, Niepelt and Ranciere (2017, NBER WP/CEPR WP/IMF WP)

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Preemptive and Post-default Restructurings

Preemptive restructurings "Strictly preemptive" restructurings are those which are implemented with no missed payments at all (no legal default).

"Weakly preemptive" restructurings are those in which some payments were missed, but only temporarily and after the start of formal or informal negotiations with creditor representatives (no unilateral default).

Post-default restructurings Post-default restructurings are all other cases, in which payments are missed unilaterally and without the agreement of creditor representatives (unilateral default prior to negotiations).

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Sovereign Debt Restructurings

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Preemptive and Post-default Restructurings

Stylized Fact 1: Preemptive restructurings have a much shorter duration (12 months on average).

Stylized Fact 2: Preemptive restructuring also have much lower haircuts.(18% on average).

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Sovereign Debt Restructurings

February 23, 2018

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Preemptive and Post-default Restructurings

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Preemptive and Post-default Restructurings Stylized Fact 3: Preemptive restructurings are associated with signi‌cantly lower output losses.

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Sovereign Debt Restructurings

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Preemptive and Post-default Restructurings Stylized Fact 4: Preemptive restructurings are associated with shorter periods of market exclusion.

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Sovereign Debt Restructurings

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Preemptive and Post-default Restructurings

Stylized fact 1: Preemptive restructurings have a much shorter duration (12 months on average).

Stylized fact 2: Preemptive restructuring also have much lower haircuts.(18% on average).

Stylized fact 3: Preemptive restructurings are associated with signi‌cantly lower output losses.

Stylized fact 4: Preemptive restructurings are associated with shorter periods of market exclusion.

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Sovereign Debt Restructurings

February 23, 2018

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Sovereign Bond Prices, Haircuts and Maturity SZ recovery (haircuts) - SZ (2006, 2008) SZRTi =

NPVT (e, rTe ) NPVT (i, rTe )

(1)

Denominator is hypothetical market value of old instrument i Exchange recovery i Rt,T =

NPVT (e, rTe ) NPVt i, rti

(2)

Denominator is actual market value of old instrument i Two measures at t = T (exchange) i Rt,T

SZRTi Asonuma (IMF)

=

NPVT (i, rTe ) NPVT i, rTi

Sovereign Debt Restructurings

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Sovereign Bond Prices, Haircuts and Maturity

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Sovereign Bond Prices, Haircuts and Maturity Stylized fact 1: Haircuts on short-term bonds are larger than those on longer-term bonds.

(A) SZ recovery

(B) Exchange recovery

- Not speci‌c to (i) type of debt, (ii) restructuring strategy, or (iii) exchange method.

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Sovereign Debt Restructurings

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Sovereign Bond Prices, Haircuts and Maturity Stylized fact 2: The di¤erence in prices between short-term and longer-term bonds decreases in the run-up to the debt exchange.

(A) Greece 2011-12 Ext.

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Sovereign Debt Restructurings

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Sovereign Bond Prices, Haircuts and Maturity Stylized fact 3: The term structure of default probability becomes elevated at the short end in the run-up to the exchange.

(A) Greece 2011-12 Ext.

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Sovereign Debt Restructurings

February 23, 2018

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Sovereign Bond Prices, Haircuts and Maturity

Stylized fact 1: Haircuts on short-term bonds are larger than those on longer-term bonds.

Stylized fact 2: The di¤erence in prices between short-term and longer-term bonds decreases in the run-up to the debt exchange.

Stylized fact 3: The term structure of default probability becomes elevated at the short end in the run-up to the exchange.

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Sovereign Debt Restructurings

February 23, 2018

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