Sovereign Default Risk Valuation Implications of Debt Crises And Bond Restructurings

Andritzky, Jochen

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Andritzky, Jochen
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Past cycles of sovereign lending and default in emerging markets suggest that debt crises will recur at some point. In addressing debt crises it has proven helpful to distinguish between situations of illiquidity and insolvency. Solutions range from a voluntary debt swap to a soft or hard restructuring. This book shows why investors should reckon with similar credit events in the future.Insights gained from recent restructurings inspire the design of a valuation model for sovereign bonds. Using the distinction between hard and soft restructurings, the model draws parallels to the concepts of face value and market value recovery. An extension into credit default swap markets explains why bond and CDS spreads diverge during distress.This survey of the sovereign bond market provides investors with a useful toolkit for analyzing sovereign bonds and foreseeing trends in the international financial architecture. The result should be a better understanding of debt crises and more deliberate investment decisions.Andritzky, Jochen is the author of 'Sovereign Default Risk Valuation Implications of Debt Crises And Bond Restructurings', published 2006 under ISBN 9783540374480 and ISBN 3540374485.

...s have afflicted developed economies as well as emerging market countries ... Collective Action Clauses Sovereign Bondholders Cornered ... . Figure 1 shows a partial list of financial crises (identified by the first year of the crisis) that have ... Sovereign Debt Restructurings and the IMF: Implications for Future Official Interventions* Aitor Erce Bank of Spain April 2013 Revised: June 2013 Abstract This paper studies the role played by the IMF during sovereign debt restructurings and extract lessons for future official interventions. To do so, I compare twelve recent debt restructurings. I begin by detai ... Sovereign Debt (Chapter 11) - Sovereign Debt Crises ... . To do so, I compare twelve recent debt restructurings. I begin by detailing the main features ... Sovereign Default: A failure on the repayment of a county's government debts. Countries are often hesitant to default on their debts, since it will be difficult and expensive to borrow funds after ... to manage and resolve sovereign debt crises once they occur. Some suggest that institutional reforms making it easier for the private sector to restructure unsustainable sovereign debts would provide a more attractive alternative to IMF financial assistance, and that getting the IMF out of the bailout business would reduce excessive-risk taking and help to stabilize the international financial ... contribution is that we are the first to estimate haircuts based on a present value approach for all 180 sovereign debt restructurings with foreign banks and bondholders between 1970 and 2010. In addition, we collect data on nominal debt reduction, measured as the share of debt written off to face value. action clauses in foreign law bonds. More recently, the banking crisis of 2008-09 has led to the implementation of an ambitious financial sector reform agenda to reduce the risk of such a crisis occurring again. But reforms to reduce the incidence and cost of sovereign debt crises, such as those experienced in the euro area, have proceeded more slowly. The international community has a role ... Sovereign debt crises involve debt restructurings characterized by a mix of face-value haircuts and maturity extensions. The prevalence of maturity extensions has been hard to reconcile with economic theory. We develop a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes. While debt dilution pushes for negative maturity extensions, three ... The debt crisis in Latin America in the 1980s, the Asian crisis of the late 1990s and the American-born Global Financial crisis of 2007-2008 brought financial turmoil created by sovereign debt into public prominence. Addressing this issue became part of the official agenda following spectacular sovereign defaults, such as that of Argentina at the beginning of the century. The Sovereign Debt Crisis That Was Not 15. Daniel Cohen and Cécile Valadier. 2. Unpleasant Surprises: Determinants and Risks of Sovereign Default 45. Luca Bandiera, Jesús Crespo Cuaresma, and Gallina A. Vincelette. 3 Finding the Tipping Point: When Sovereign Debt Turns Bad 63. Mehmet Caner, Thomas Grennes, and Fritzi Koehler-Geib. 4 ......