Discussion paper
DP19825 The Aggregation Dilemma: How Best to Restructure Sovereign Bonds
Most sovereign bonds today include "aggregated" collective action clauses (CACs). We study the problem of a government that seeks to restructure multiple bond series in the presence of such provisions. We characterize how the optimal aggregation procedure and restructuring offers depend on the heterogeneity of bondholders within and across series, and on the relative size of the bonds. We then analyze how aggregated CACs affect the bond market equilibrium before restructuring when investor bases are determined endogenously. Our results shed light on the aggregation method employed by Argentina and Ecuador in 2020, and on the ongoing reform of Euro-Area CACs.
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