Collective Action Clauses in International Sovereign Bond Contracts – Whence the Opposition?

Häseler, Sönke

doi:10.1002/9781444391602.ch5

Cited by 10 publications

(13 citation statements)

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“…16 This includes the papers by Tsatsaronis (1999), Eichengreen and Mody (2000), and Becker, Richards, and Thaicharoen (2001). 17 Gugiatti and Richards (2004) and Häseler (2009) remark that the correlation between governing law and CACs is less than perfect, which casts doubts on the results of the early empirical CACs literature.…”

Section: Collective Action Clausesmentioning

confidence: 99%

“…For potential reasons for the delayed market reaction, seeGelpern and Gulati (2007) andHäseler (2009).2 Gugiatti and Richards (2004) andGelpern and Gulati (2008) document a number of sovereign bond contracts from before 2003 that include CACs despite being governed by New York law.3 To erase the doubts surrounding the admissibility of CACs under German law (seeHäseler, 2009), a reform of the Schuldverschreibungsgesetz (indenture law) was enacted on August 5 th , 2009. Whether or not there will be any impact on market practice is difficult to say because only a single bond has been issued under German law since 2004, according to the dataset used in this study.…”

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confidence: 99%

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Trustees versus fiscal agents and default risk in international sovereign bonds

Häseler

2010

Eur J Law Econ

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Over the last ten years, institutions such as the IMF have launched several initiatives to change market practice with respect to sovereign bond contract drafting in order to ease restructuring after defaults. The first of these, the universal adoption of collective action clauses, was embraced by the market after some hesitation. Another proposal-the more widespread appointment of trustees to represent bondholders in times of crisis, to centralise enforcement action against the debtor and thus to facilitate debt relief-has so far failed to have the desired impact. Amongst other potential reasons for this failure, the argument has been made that to vest enforcement rights in the trustee, as opposed to individual bondholder rights, would be to reduce the deterrence against opportunistic defaults and thus to exacerbate moral hazard. Using a sample of secondary market bond spreads and information on default status, this paper assesses empirically whether sovereign bonds issued under a trust structure indeed carry a higher default risk. It finds no systematic evidence of either a spread premium or higher actual default rates for bonds with collective enforcement rights.

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Section: Collective Action Clausesmentioning

confidence: 99%

mentioning

confidence: 99%

Trustees versus fiscal agents and default risk in international sovereign bonds

Häseler

2010

Eur J Law Econ

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“…Berensmann and Herzberg (), Häseler () and Panizza et al . (), to name but a few, describe and compare various existing proposals to solve these problems culminating in an international insolvency law for states.…”

Section: Integrating Quantitative Models Of Sovereign Default Into Thmentioning

confidence: 99%

Recent Developments in Quantitative Models of Sovereign Default

Stähler

2012

Journal of Economic Surveys

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Abstract:The current crisis and discussions, in the euro area in particular, show that sovereign debt crises/defaults are no longer restricted to developing economies.After crises in many Latin American countries, the literature on quantitative dynamic macro-models of sovereign default has been advancing. Current debate should take notice of the findings from this literature -an extensive overview of which has been provided in this paper. This paper also discusses the difficulties involved in, but also possibilities of, integrating this type of model in standard business cycle models (RBC and DSGE models). This is likely to be particularly helpful when using models to analyse upcoming issues in the euro area, such as a suitable (sovereign) insolvency law or the assumption of joint liability. Keywords Non-technical summaryThe current crisis and discussions, in the euro area in particular, show that sovereign debt crises/defaults are no longer restricted to developing economies.After crises in many Latin American countries, the literature on quantitative dynamic macro-models of sovereign default has been advancing. Current debate should take notice of the findings from this literature -an extensive overview of which has been provided in this paper.The literature on quantitative dynamic macro-models of sovereign default shows that (1) despite the absence of international insolvency legislation, sovereigns have an interest in repaying debt owing to reputational damage and negative output effects; (2) in the event of transitory shocks, debt level is the key factor determining the probability of default; in the event of trend shocks, the output level also plays a decisive role; (3) the political stability of a country reduces its probability of default; (4) bailouts or the possibility of borrowing from international financial institutions such as, for example, the IMF (can) increase the probability of default; (5) fiscal policy acts procyclically if it takes the probability of default and the impact on interest rates into account; (6) taking private sector debt into account does not change the above-mentioned qualitative statements but can increase a government's propensity to borrow (in relative terms); (7) endogenising negotiations about debt recovery rates tends to increase the interest rates on sovereign debt but a government's propensity to borrow can still rise; (8) it can be efficient for borrowers and creditors to delay negotiations over restructuring sovereign debt, although this is heavily dependent on the assumed bargaining game; (9) long-term bonds usually have a higher rate of interest than short-term ones; (10) contagion effects owing to risk-averse investors as well as information shocks affecting investors that impact on the interest rate can even cause fundamentally sound governments to default; and (11) the formal method of solving these models also plays a role in quantitative terms. All of these aspects and the relevant effects that lead to these conclusions are explained in detail in this paper. ...

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“…Pericoli and Sbracia (2003) examine financial contagion, Dowd (1992) provides a critical perspective of the bank run literature, and Schroeder (2008) considers country risk assessment. Related policy and supervisory issues are considered in: Moore (1999) and Santos (2006), on the lender‐of‐last‐resort and deposit insurance; De Ceuster and Masschelein (2003) and Drumond (2009) on regulation through market discipline and the Basel Accords; Bird (2007) on the IMF; Berensmann and Herzberg (2009) and Häseler (2009) on sovereign insolvency procedures.…”

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confidence: 99%

Contributions on Macroeconomics and Policy

Sayer¹

2011

Journal of Economic Surveys

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Collective Action Clauses in International Sovereign Bond Contracts – Whence the Opposition?

Cited by 10 publications

References 23 publications

Trustees versus fiscal agents and default risk in international sovereign bonds

Trustees versus fiscal agents and default risk in international sovereign bonds

Recent Developments in Quantitative Models of Sovereign Default

Contributions on Macroeconomics and Policy

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