CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
A sovereign restructures its external bonds by extending maturities and cutting coupons but leaving the principal unchanged. This restructuring is best described as a:
It is best described as a debt rescheduling or reprofiling. Longer maturities and lower coupons with unchanged face value reduce the present value of creditor claims, without cutting principal as forgiveness would or converting debt into equity.
- Adebt reprofiling or rescheduling that lowers the present value of creditor claimsCorrect
- Bdebt forgiveness of the face amount
- Cdebt-for-equity swap
Explanation
Extending maturities and cutting coupons with unchanged principal is a rescheduling, which reduces the present value of claims. Forgiveness would cut face value, and a debt-for-equity swap would give creditors ownership stakes.
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