NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Structuring and Restructuring Sovereign Debt: The Role of Seniority

Patrick Bolton, Olivier Jeanne

NBER Working Paper No. 11071
Issued in January 2005
NBER Program(s):   CF   IFM

In an environment characterized by weak contractual enforcement, sovereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure. We show within a simple model how competition for repayment between lenders may result in sovereign debt that is excessively difficult to restructure in equilibrium. Alleviating this inefficiency requires a sovereign debt restructuring mechanism that fulfills some of the functions of corporate bankruptcy regimes, in particular the enforcement of seniority and subordination clauses in debt contracts.

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Document Object Identifier (DOI): 10.3386/w11071

Published: Patrick Bolton & Olivier Jeanne, 2009. "Structuring and Restructuring Sovereign Debt: The Role of Seniority-super-1," Review of Economic Studies, Blackwell Publishing, vol. 76(3), pages 879-902, 07.

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