A sweeter sovereign debt restructuring sweetener

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The story "A sweeter sovereign debt restructuring sweetener" was covered 13 hours ago by Financial Times, a news publisher based in United States.

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Financial Times 13h ago

A sweeter sovereign debt restructuring sweetener - Financial Times

Quick Summary:

While it may be difficult to quarrel with the market’s logic for demanding a value recovery feature, sovereign debtors make the following points: Value recovery instruments (VRIs) that are triggered by future commodity prices or GDP levels will, by definition, be out of the money at the time they are issued.

A better VRI mousetrap would be one that: (i) rewards Ruritania’s creditors for the sacrifices they made at the time of Ruritania’s debt restructuring; (ii) provides a positive benefit to Ruritania in return for making VRI payments; and (iii) reduces legal and operational risk through simplicity of design and drafting.

In practical terms, this means that the sovereign debtor will typically receive little or nothing (in the form of improved financial terms in the debt restructuring) for its willingness to include a value recovery feature in the package.