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“Debt experts champion Brady bond proposal”

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Two well-known debt experts, Lee Buchheit and Adam Lerrick have sent a proposal aimed at doing what Brady bonds did in bringing the Latin American debt crisis to a halt, but in an updated manner.

They suggest the offer to creditors of two bond exchange structures. The entire stock of the government’s external bonds would be converted into an equal nominal amount of 25-40 year debt at a 3-3.5% interest rate. The result should reduce the (currently unpayable) net present value of the debt by more than 50%.

Under the “Cash Down Payment Structure”, investors receive a cash down payment of the existing bond equal to 30-35 % of its current market value plus a new standard long-term bond with no write down of the principal amount. Under the “Floor of Support Structure”, investors receive a new long-term bond of equal nominal amount that has a liquid rising floor of support with an initial value of 60-70% of the existing bond’s current market value. The floor of support is based on the investor’s ability to convert the new bond into a World Bank zero-coupon bond at any time. The IFIs would finance this through a combination of new loans and repurposing of undrawn amounts under existing loans, again following the Brady precedent.

The IFI loans should also contain provisions that restrain excessive borrowing.

Creditors are likely to accept this as the alternative would be a long drawn-out mess in which they are likely to get far less. Meanwhile, IFIs could sort out the dire situation of so many clients at a predefined price.

(FT.com)

Tuesday, February 7, 2023 – 01:00











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