A main puzzle in the sovereign debt literature is that defaults have only minor effects on subsequent borrowing costs and access to credit. This paper comes to a different conclusion. We construct the first complete database of investor losses (“haircuts”) in all restructurings with foreign banks and bondholders from 1970 until 2010, covering 180 cases in 68 countries. We then show that restructurings involving higher haircuts are associated with significantly higher subsequent bond yield spreads and longer periods of capital market exclusion. The results cast doubt on the widespread belief that credit markets “forgive and forget.” (JEL E43, F34, G15, H63)

Most practitioners add the country risk to the discount rate when valuing projects in Emerging Markets. This practice does not account for the fact that the default risk term structure can be nonflat. The mismatch between the duration of the project under valuation and the duration of the most widely used measure of country risk, J.P. Morgan's EMBI, leads to an overvaluation (undervaluation) of long-term projects when the term structure of default risk is upward (downward) sloping. Using sovereign bond data from five Emerging Markets, we estimate a simple model that captures most of the variation of conditional default probabilities at different horizons for a given country at one point in time. This model can be used to solve the misestimation problem. JEL classification codes: G15, G31 CS is the credit spread between the yield of a U.S. dollar-denominated EM sovereign bond and the yield of a comparable U.S. bond, and the term preceding the last parenthesis is an "adjusted beta", that is equivalent to 60% of the ratio of the volatility of the domestic market to that of the U.S. market. 2 1 Neumeyer and Perri (2001) find that output in Argentina, Brazil, Korea, Mexico and Philippines is at least twice as volatile as it is in Canada.2 The 60% adjustment is due to the finding that 40% of the volatilities of domestic markets are explained by variations in credit quality --see Godfrey and Espinosa (1996) for details.

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NML v. Argentina, the "trial of the century" in sovereign debt, is finally poised for settlement negotiations. International experience, incentives for the parties themselves, and even statements by the presiding federal judge, all suggest that it is high time for a settlement between the parties. However, major challenges remain. In this Article, we analyze a subset of the key economic and legal factors underlying this litigation, with a particular emphasis on issues relevant to a potential settlement. We document the wide heterogeneity of holdout rates across Argentina's 150 defaulted bonds (of which seventy-four still have holdout rates greater than five percent) and focus the subsequent analysis on the seven most held-out bonds-which have holdout rates between twenty and eighty-two percent and account for about thirty percent of total holdout principal. We show that New York's statutory real rate of interest on overdue interest has been 6.6% on average during the years affecting this suit compared to 3.1% during the previous forty years. As such, this rate has become more punitive than compensatory. We also illustrate the growth of the value of holdout claims for the seven bonds from their initial $1.7 billion in principal up to $4.3 to $7 billion in current value, depending on when holdouts obtained judgments. We analyze the sensitivity of holdout claims to different approaches to overdue interest-an issue that has become increasingly controversial in New York state law in recent years. We next assess the returns that investors would have obtained by purchasing the seven-bond basket at different times since 2002. We find that investors would have multiplied their money an average of eight times if

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