Debt Restructuring for Emerging Markets
Anzetse Were recently attended a closed-door conference convened at Wilton Park in association with Alvarez & Marsal, Bluebay Asset Management, JP Morgan, PGIM and White & Case.
The event gathered high level private and public sector representatives as well as experts from outside government in a participatory dialogue to discuss the challenges facing emerging market countries in debt distress and to identify solutions for more efficient and effective debt restructuring processes. It encompassed participants from creditor countries and companies alongside low or lower-middle income emerging market countries with high levels of debt.
Below are the key takeaways from our proceedings which should be of interest to emerging economies with high levels of external debt held by the private sector:
There is a need to enhance the voice and agency of borrowing countries throughout debt crisis resolution processes, building at the Global Sovereign Debt Roundtable (GSDR), via both initiatives to build capacity for debt management and by supporting access to financial and legal assistance.
Pre-emptive crisis response should be encouraged, including through the establishment of regular communication channels and engagement.
Several conference participants considered that there should not be any rigid sequencing in the treatment of different sets of financial obligations. Commercial creditors should be encouraged to act promptly and there should be a margin of flexibility in the comparability assessment to incentivise timely action.
Intercreditor equity concerns could be tackled by enhancing transparency and information sharing regarding both the composition of the borrowing country’s debt profile and the parameters underlying the formulation of the DSA processes with creditors.
A significant view expressed at the conference argued that the creation of an entity to represent private creditors on an ongoing basis in debt restructuring negotiations and other debt-related matters could help ensure higher levels of transparency and trust amongst creditors, while also contributing to speedier outcomes. Moreover, it might lead to the identification of new solutions to deal with legacy debt and unlock additional sources of finance.