BURDEN-SHARING IN SOVEREIGN DEBT REDUCTION

We examine a concerted debt reduction deal between a sovereign debtor, a private creditor, and an official creditor, who insures the deposit s of the commercial bank. Our results show that a weakening of the fin ancial position of the commercial bank reduces the contribution of the commercial bank and increases that of the official creditor, without affecting the net terms faced by the debtor. This result is robust to changes in seniority. Moreover, leaving both creditor values unchanged requires that commercial banks retire debt at ''unfairly'' high price s, while official creditors make a net contribution.