Lis Hoxha, Andrew Kerr

The Impact of Creditor Composition on Sovereign Debt Restructuring

Introduction

The impact of creditor composition on sovereign debt restructuring. Analyze creditor composition's impact on sovereign debt restructuring. Private creditors receive 3-8% lower haircut rates than multilateral/bilateral. Global instability & country traits are key factors.

Abstract

Sovereign nations typically engage with multiple creditors when acquiring debt. We examine the relationship between creditor composition and the haircut applied to the original value of a debt obligation during renegotiation. Our results suggest that, even after accounting for variations in loan characteristics, private creditors can expect to receive haircut rates approximately 3% to 8% lower than multilateral and bilateral creditors. We also identify several factors that may influence haircut rates, including country-specific characteristics, global financial instability, the duration of re-negotiations, and the recurrence of default. Notably, higher haircut rates are positively associated with the length of time between defaults and periods of globalfinancial instability.

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