RECENT EXPERIENCE WITH COMMERCIAL BANK DEBT REDUCTION - HAS THE MENU OUTDONE THE MARKET

Debt reduction at market terms has been criticized as too expensive from the point of view of the debtor. The recent debt reduction agreements following the ''menu approach'' are partially concerted, but they also possess some elements of voluntariness. This raises two issues: (a) what is the conceptual justification for such financial arrangements? and (b) based on recent evidence, to what extent have these arrangements reduced the cost of debt reduction? In a review of six recent menu-driven debt reduction agreements, we find that the debtors achieved a far better financial result than would have been feasible with simple market buybacks.