Securitization, liquidity, and the Brady plan

Securitization of bank loans is proposed as a solution to the ongoing debt difficulties for emerging market nations. This paper analyzes the effects of the Brady plan for four participating countries. In addition to resolving repayment problems, the plan had a statistically significant effect on prices due to its positive impact on liquidity. Previously, the market for traded bank debt was illiquid and dominated by a few large traders who depressed the price by exerting oligopsony power. By using Perron’s method of discerning breaks, it is found that the introduction of bonds led to structural change in the LDC secondary debt market. These effects are in addition to those of debt resolution and domestic reform.