Citation

Discussion Paper Details

Please find the details for DP2343 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Would Collective Action Clauses Raise Borrowing Costs?

Author(s): Barry Eichengreen and Ashoka Mody

Publication Date: December 1999

Keyword(s): Debt, IMF and Restructuring

Programme Area(s): International Macroeconomics

Abstract: 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2343

Bibliographic Reference

Eichengreen, B and Mody, A. 1999. 'Would Collective Action Clauses Raise Borrowing Costs?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2343