Sovereign Bond Restructuring: Collective Action Clauses and Official Crisis Intervention”, Paper for Bank of England conference

This paper compares the restructuring of sovereign bonds with and without collective action clauses. Collective action clauses can allow efficient debt restructuring in a formal model of sovereign debt renegotiation while unanimous action clauses create incentives for opportunistic behavior by bondholders leading to inefficient outcomes. Collective action clauses can allow bondholders to internalize the mutual gains from renegotiation, although a coordination problem between the holders of different bond issues can be a barrier to debt restructuring. Super-collective-action clauses allowing a qualified majority of the all bondholders to decide the restructuring of all the bond issues can resolve this problem