Description

Despite the apparent advantages of bond financing, investors’ concessions in sovereign debt restructurings unexpectedly declined following market disintermediation. This paper develops a model in which dispersed bondholders face a coordination game during bond restructuring, and shows that this mechanism predicts lower haircuts. Empirical tests are consistent with this prediction, and a calibrated simulation indicates that coordination frictions can account for up to 25% of the observed reduction, highlighting that lowering participation costs can improve investor alignment and restructuring outcomes.