Europeans Must Exchange Debt

When companies are over-leveraged, they respond either with a debt-for-equity swap or with a debt exchange offer that reduces the face value of the bonds. While these reorganizations are difficult to negotiate, they have the potential to make both creditors and debtors better off. Even the most conservative estimates put the cost of such financial distress at 15 percent of a companyâ??s value. If we were to apply similar figures to countries, the results would be more than enough to satisfy both bondholders and issuers.