A fourth, but very small, market is that for Brady bonds. Brady bonds reflect programs under which the U.S. and other FIs have exchanged their dollar loans for dollar bonds issued by the relevant less developed countries (LDCs). These bonds have a much longer maturity than that promised on the original loans and a lower promised original coupon

(yield) than the interest rate on the original loan. However, the principal usually has been collateralized through the issuing country’s purchasing U.S. Treasury bonds and holding them in a special-purpose escrow account. Should that country default on its Brady bonds, the buyers of the bonds could access the dollar bonds held as collateral. These loan-forbond restructuring programs, also called debt-for-debt swaps, were developed under the auspices of the U.S. Treasury’s 1989 Brady Plan and international organizations such as the IMF. Once loans were swapped for bonds by banks and other FIs, they could be sold on the secondary market. The Brady bond process ended in the 1990s. Yet a small amount of these bonds still exist and trade.

 LO.1