Brady Bonds

The bonds were named after U.S. Treasury Secretary Nicholas Brady, who proposed a novel debt-reduction agreement for developing countries.

In exchange for commercial bank loans, the countries issued new bonds for the principal sum and, in some cases, unpaid interest.

Banks wishing to cease their foreign lending activities tended to choose the exit option under the auspices of the deal.

By offering a "menu" of options, the Brady Plan permitted credit restructurings to be tailored to the heterogeneous preferences of creditors.

Interest payments on Brady bonds, in some cases, are guaranteed by securities of at least double-A-rated credit quality held with the Federal Reserve Bank of New York.

Countries that participated in the initial round of issuing Brady bonds were Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador, Mexico, Morocco, Nigeria, Philippines, Poland, Uruguay, and Venezuela.

Stakeholders involved in Brady Bond debt restructuring and transactions. Dollar values on outstanding loans and bonds are illustrative; bonds were rarely issued for less than US$125 million, and lenders frequently accepted either 30–50% losses on face value or reduced interest rates fixed at below-market values. [ 1 ] According to EMTA, a financial industry trade association, most lenders that accepted Brady bonds for outstanding loans were smaller US commercial banks or non-US financial institutions, rather than "major money center banks." [ 2 ]