Recent Cases of Debt Restructuring
|Announcement||Announced intention to restructure domestic and foreign debt in late October 2001 under a two-phase approach. The first phase was completed in December 2001. Phase 2 was to be initiated within a few months of Phase 1, but due to deteriorating market conditions, a moratorium on debt not included in Phase 1 was announced in late December 2001. Since then, there has been little progress on Phase 2||Missed payments in September1999 and later defaulted. Almost11 months later, announced on July 27, 2000 a comprehensive exchange offer.||Exchange offer was launched in November 1999. The restructuring took place as a requirement under the comparability of treatment clause or a Paris Club rescheduling.||Declared unilateral moratorium on debt service payments on August 17, 1998 after unsuccessful attempts at restructuring. A Paris Club agreement was concluded one year later, succeeded by a London Club agreement.||After unsuccessful attempts at earlier restructurings, announced an exchange offer in early 2000.|
|Restructured debt||Under Phase 1, all U.S. dollar and Argentine peso bonds were eligible for exchange. Bonds denominated in European currencies and yen were not eligible for exchange.||On external debt, the instruments restructured were collateralized Discount Brady bonds, collateralized Par Brady bonds, uncollateralized Past-Due Interest, Interest Equalization Brady bonds, and Eurobonds with a total face value of $6.5 billion. On domestic debt, all domestic public debt maturing between September 1999 and end–2000 of $346 million.||Three Eurobonds governed by English law and contained collective action clauses (CAC). The bonds, with a face value of $608 million, had bullet redemptions in the period December 1999 to February 2002, and coupons ranging from 6 to 11.5 percent.||All ruble-denominated (including GKOs) debt falling due between August 19, 1998 and December 31, 1999 (except paper held by households and the central bank), amounting to about 10.8 percent of GDP and about $31.8 billion of claims (Prins and IANs) held by London Club creditors.||Three bonds governed by Luxembourg law which contained CACs, and a bond governed by German law that did not include such clauses. The coupons on the instruments ranged from 8.5 percent to 16.75 percent.|
|Terms of restructuring||Under Phase 1, all eligible U.S. dollar and Argentine peso bonds were exchanged for new domestic loans featuring (1) a reduction of interest rates to 70 percent of the contractual level, subject to a cap of 7 percent for fixed-rate debt or LIBOR plus 300 basis points for floating rate debt; (2) a grace period for interest until April 2002, after which interest was to be paid monthly; (3) a three-year extension of maturity in the case of bonds maturing up to 2010; and (4) a guarantee under which payments on the new loans were to be secured on Financial Transactions Tax receipts. The authorities accepted sovereign bonds with a face value of $41 billion and a further $9 billion in provincial debt.||The defaulted bonds were swapped into a single global U.S. dollar denominated step-up 30-year bonds, with an option to convert the 30-year bond into a U.S. dollar denominated 12-yearbond for additional debt reduction. The 30-year bond included a principal reinstatement clause requiring bond holders to be credited with additional bonds equivalent to the amount of debt reduction obtained through the exchange in the event of a default on the new instrument in the first 10 years of its life.|
Ecuador was the first and only sovereign to use exit consents to make the bond less attractive through modification of nonpayment provisions in order to reduce the leverage of holdout creditors.
|Outstanding Eurobonds were exchanged for a new amortizing bond with overall maturity of six years including three-year grace period and with a coupon of 10 percent.|
The uniformity of the investor base facilitated discussions with creditors and ensured a high participation rate of 99 percent in the eventual debt exchange.
Pakistan chose not to make use of the CACs because they were concerned that calling a bondholders meeting might facilitate the organization of bondholders opposed to a restructuring.
|GKO debt was converted into medium-and long-term bonds with fixed declining coupons and the government ceased issuing new GKOs until December 1999.|
The London Club claims were exchanged for $21 billion in new 30-year Eurobonds, which also had below market coupons and a 7-year grace period. A new 10-year Eurobond was offered in exchange for past-due interest claims that accumulated up until March 31, 2000. The Eurobond had a six-year grace period.
|Claims were exchanged for new amortizing instruments with maturities of seven years, including a grace period of one year. Investors were offered a choice of a Euro-denominated bond bearing a coupon of 10 percent, and a U.S. dollar denominated bond with 11 percent coupon. The limited number of investors and the use of a novel hybrid mechanism that combined an exchange offer for all of the instruments with the use of CACs in three of the instruments assured the sovereign of a successful debt exchange.|
|Debt relief||In March 2002, the Phase 1 loans were included in the general pesoization of domestic contracts denominated in foreign currency. U.S. dollar loans were converted into pesos at a rate of 1.4 to 1, while the prevailing market rate was around 2.5.||Reduction in face value on domestic debt of 41 percent. This was partly offset by a higher coupon on the new debt.||External debt service fell by one-half as a result of the Eurobond and Paris Club rescheduling.||There was a 37.5 percent reduction in the principal of PRINS and 33 percent reduction in principal of IANS. There were also substantial reductions in net present value terms on GKOs.||There was some reduction in net present value terms as a result of lower coupons on the new instruments.|
|Investor base||Of the $100 billion restructured debt, about $50 billion was estimated to be held by domestic financial institutions (roughly equal number of banks and pension companies); $20 billion by European retail investors; $3 billion by Japanese retail investors and the remaining $27 billion largely held by U.S. institutional investors.||Widely held by institutional investors in New York and London, who have substantial holdings of emerging market debt.||Roughly one-third of the restructured bonds were held by domestic residents with the rest by financial institutions and retail investors from the Middle East. U.S. and European investment firms had only small holdings of the debt.||Of the restructured debt, about 70 percent was held by domestic banks and the remainder by nonresidents.||The three bonds, which contained collective action clauses (CACs), were held by a relatively limited number of investment banks and hedge funds. The remaining bond issue was widely held in the household sector in Europe.|