A question for my financial market readers

Brady bonds: was their issuance considered a default by the original sovereign lenders?

The point being that if they were, then issuance of similar to Brady bonds for Greece etc should be a default by Greece etc.

If they wenre\’t then it all becomes more arguable.

So, were Brady bonds considered a default?

2 thoughts on “A question for my financial market readers”

  1. Brady bonds were initially exchanged for bank loans that had already defaulted, so the default had happened previous to the acceptance of the debt issue.

    It could be argued that where there is no reduction in principal value (i.e. the bonds are exchanged on a 1 for 1 nominal basis, rather than a haircut being taken), then technically there is not a default, however under the Frech plan, I don’t believe that this would be the case.

    It looks like S&P’s defult argument rests upon any changes of terms to the original issue (ie nominal, maturity etc.), so unless there is an exchange on identical terms, a default (Whether ‘soft’ or ‘hard’ or whatever term they are calling it today) seems likely.

  2. Yes they were.

    Default criteria basically involve the investor recieving less back than originally expected (obviously) or more pertinent to this case, worse terms than originally expected.

    Having your money tied up for 30y rather than 2y is a massive increase in risk, and a massive decrease in liquidity. Hence, even if you get the same amount back at the end it is effectively default if bond holders are forced into the switch.

    Thing is, once you’ve defaulted there is no compuction for rating’s agencies to keep an issuer in default….Iceland a good current example. Once your debt is written off/sustainable the chances are your ratings head up very rapidly.

    Ratings are forward looking, even if applied in a reactionary manner usually.

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