The Role of the Paris and London Clubs: Is It under Threat?

Over the past sixty years, the features of sovereign debt restructurings have been shaped by the type of creditors and by the nature of the debt. Debt restructuring vehicles therefore change according to the category of creditors involved: (a) official bilateral debt is renegotiated under the Paris Club umbrella; (b) commercial bank debt is restructured through the so-called London Club process or Bank Advisory Committees; and (c) bond debt is restructured via exchange offers. The purpose of this book chapter is to assess whether, in light of recent developments, the Paris and the London Clubs can still play a leading role in sovereign debt restructurings. After an analysis of the Paris and the London Clubs, which developed as the preferred fora for the restructuring of debts owed by a State to homogeneous groups of creditors (other States and commercial banks respectively), this study will focus on the creditor structure of sovereign bonds. It is argued that the fragmentation of the bondholders’ profile can pose a host of complex issues to the development of a dedicated workout mechanism for the restructuring of sovereign bond debt. In particular, the challenges posed by supranational bondholders are yet to be carefully addressed, while the principles and practices developed by the Paris and the London Clubs can only be of a limited use.