Sovereign rating after private and official restructuring

Silvia Marchesi; Tania Masi

doi:10.1016/j.econlet.2020.109178

Sovereign rating after private and official restructuring

Econ Lett. 2020 Jul:192:109178. doi: 10.1016/j.econlet.2020.109178. Epub 2020 Apr 25.

Authors

Silvia Marchesi^{1

2

3}, Tania Masi^{1

2}

Affiliations

¹ University of Milano Bicocca, Italy.
² CefES, Italy.
³ Centro Studi Luca D.Agliano, Italy.

Abstract

This paper studies the relationship between sovereign debt (final) restructuring and sovereign ratings, by distinguishing between commercial and official debt and by considering the creditors' loss (haircut). Institutional Investor's index is taken as a measure of a country's creditworthiness. We find that while a restructuring with private creditors seems to involve some reputational costs, "official defaulters" are not affected (or may even benefit) by the restructuring episodes. Using the Synthetic Control Method, we find further evidence for the heterogeneity of the economic impact of debt restructurings, confirming that official and private restructurings may have different costs and then induce selective defaults.

Keywords: Institutional investor; Sovereign restructuring; Synthetic control method.