by With Tamon Asonuma and Romain Ranciere. UniBe Discussion Paper 22-13, November 2022. PDF. We document that creditor losses (”haircuts”) during sovereign debt restructurings vary across debt maturity. In our novel dataset on instrument-specific haircuts suffered by private creditors in 1999-‒2020 we find larger losses on short- than long-term debt, independently of the specific haircut measure we use. A standard asset pricing model rationalizes our findings under two assumptions, both of which are satisfied in the data: increasing short-run restructuring risk in the run-up to a restructuring, and high exit yields. We relate our findings to the policy debate on restructuring procedures.
Topics:
Dirk Niepelt considers the following as important: Contributions, default, Haircut, Maturity, Maturity structure, Research, Restructuring, Risk Premium, Sovereign Debt
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With Tamon Asonuma and Romain Ranciere. UniBe Discussion Paper 22-13, November 2022. PDF.
We document that creditor losses (”haircuts”) during sovereign debt restructurings vary across debt maturity. In our novel dataset on instrument-specific haircuts suffered by private creditors in 1999-‒2020 we find larger losses on short- than long-term debt, independently of the specific haircut measure we use. A standard asset pricing model rationalizes our findings under two assumptions, both of which are satisfied in the data: increasing short-run restructuring risk in the run-up to a restructuring, and high exit yields. We relate our findings to the policy debate on restructuring procedures.