Brady Bond

Brady Bonds were dollar-denominated bonds issued by emerging market countries to restructure commercial bank loans following the 1980s Latin American debt crisis. Named after U.S. Treasury Secretary Nicholas Brady, these bonds converted non-performing bank loans into tradeable securities, often with U.S. Treasury zero-coupon bonds as collateral for principal. For example, Mexico exchanged $48 billion in bank loans for Brady bonds in 1990, pioneering the program. Common structures included discount bonds (issued below face value), par bonds (issued at face value with below-market coupons), and past-due interest bonds. The Brady plan covered $200+ billion in debt across 18 countries including Brazil, Argentina, and Poland. Brady bonds created the emerging market debt asset class, with trading reaching $2.5 trillion annually by mid-1990s. Most Brady bonds have been retired through buybacks or exchanges for uncollateralized global bonds. Their success demonstrated that debt restructuring could benefit both creditors and debtors. The Brady bond precedent influences modern sovereign debt restructurings, though today’s restructurings typically involve bonds rather than bank loans.