This paper analyzes the inefficiency that arises from a debt overhang. In order to define the lenders' optimal rescheduling strategy, I calculate the maximum present discounted value of the repayment they could obtain. This upper bound occurs when the borrower gives up sovereignty over all...

We study the behaviour of secondary market prices for the debt of seven LDCs for the period March 1986 through November 1989 (monthly data). These prices for long-term debt appear to be driven by a set of `common factors' across countries. One of these is the interest rate, Libor; we found a...