ARE BUYBACKS BACK - MENU-DRIVEN DEBT REDUCTION SCHEMES WITH HETEROGENEOUS CREDITORS

We analyze the mechanics of menu-driven debt reduction deals, similar to those recently initiated by debtor countries, in which heterogeneou s banks choose freely between selling or retaining their debt claims. We show that menu deals can facilitate discrimination across heterogen eous banks because of imperfections in the secondary market for debt. This implies that menu deals are likely to dominate market buybacks an d pure concerted relending agreements, particularly when banks differ widely in their valuation of claims on the debtor.