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Bond Exchange Offers or Collective Action Clauses?

Hege, Ulrich and Mella-Barral, Pierre (2019) Bond Exchange Offers or Collective Action Clauses? Finance, 40. pp. 77-119.

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Identification Number : 10.3917/fina.403.0077


This paper examines two prominent approaches to design efficient mechanisms for debt renegotiation with dispersed bondholders: debt exchange offers that promise enhanced liquidation rights to a restricted number of tendering bondholders (favored under U.S. law), and collective action clauses that allow to alter core bond terms after a majority vote (favored under U.K. law). We use a dynamic contingent claims model with a debt overhang problem, where both hold-out and hold-in problems are present. We show that the former leads to a more efficient mitigation of the debt overhang problem than the latter. Dispersed debt is desirable, as exchange offers also achieve a larger and more efficient debt reduction relative to debt held by a single creditor.

Item Type: Article
Language: English
Date: March 2019
Refereed: Yes
Uncontrolled Keywords: Out-of-court Restructuring, Exchange Offer, Collective Action Clause, Exit Consent, Hold-out problem, Hold-in Problem, Trust Indenture Act.
JEL Classification: G12 - Asset Pricing; Trading volume; Bond Interest Rates
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G33 - Bankruptcy; Liquidation
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 12 Jun 2019 07:57
Last Modified: 13 Mar 2021 12:38
OAI Identifier:

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