Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?

Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?
READ MORE...
Volume/Issue: Volume 2020 Issue 162
Publication date: August 2020
ISBN: 9781513526843
$18.00
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
paperback else
English
Prices in red indicate formats that are not yet available but are forthcoming.
Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Banks and Banking , WP , collective action clause , yield to maturity , enhanced CACs , sovereign bond

Summary

This paper analyzes the effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs, using secondary-market bond yield spreads. Our findings indicate that inclusion of enhanced CACs, introduced in August 2014, is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers. These results suggest that market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard, but instead consider their implied benefits of an orderly and efficient debt resolution process in case of restructuring.