Abstract

This paper studies the restructuring of non-marketable debt, when the number of creditors is arbitrary, and there is asymmetric information. With multiple creditors, debt forgiveness has the character of a public good. As for the case of private provision of a public good, mechanism design methods allow to shows that debt restructuring is not generally ex-post efficient (liquidation occurs too often). We also derive an indirect mechanism, in which equity offers to exchange old debt for new claims of lowerface value, and creditors choose how much to tender. This mechanism can replicate the optimal restructuring scherme. Finally by means of an example we study repeated offers, and we show that an initial failure reveals information that discourages free-riding, and efficienty improves.