TY  - JOUR
AU  - Eichengreen,Barry
AU  - Mody,Ashoka
TI  - Would Collective Action Clauses Raise Borrowing Costs?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7458
PY  - 2000
Y2  - January 2000
UR  - http://www.nber.org/papers/w7458
L1  - http://www.nber.org/papers/w7458.pdf
N1  - Author contact info:
Barry Eichengreen
Department of Economics
University of California, Berkeley
549 Evans Hall 3880
Berkeley, CA 94720-3880
Tel: 510/642-2772
Fax: 510/643-0926
E-Mail: eichengr@econ.Berkeley.edu

Ashoka Mody
Research Department
International Monetary Fund
700 19th Street, NW
Washington DC 20431
E-Mail: amody@imf.org
M2  - featured in NBER digest on 2000-05-01
AB  - We examine the implications for borrowing costs of including collective-action clauses in loan contracts.  For a sample of some 2,000 international bonds, we compare the spreads on bonds subject to UK governing law, which typically include collective-action clauses, with spreads on bonds subject to US law, which do not.  Contrary to the assertions of some market participants, we find that collective-action clauses in fact reduce the cost of borrowing for more credit-worthy issuers, who appear to benefit from the ability to avail themselves of an orderly restructuring process.  In contrast, less credit-worthy issuers pay, if anything, higher spreads.  We conjecture that for less credit-worthy borrowers the advantages of orderly restructuring are offset by the moral hazard and default risk associated with the presence of renegotiation-friendly loan provisions.
ER  -