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As participants in an increasingly global economy, U.S. corporations and investors are increasingly identifying opportunities to invest in foreign debt securities, including debt securities issued by foreign governments. But such investments come with an added layer of risk: When a sovereign nation defaults, investors in its debt securities are often left without recourse. Unlike an ordinary corporate debtor, a sovereign cannot be forced into a bankruptcy proceeding to determine the order in which creditors will be paid. Rather, the sovereign itself can decide which debtholders to pay (if any). Adding insult to injury, the sovereign may seek to restructure its debt to meet its needs, issuing new debt in exchange for the defaulted debt on terms far less generous than those originally agreed to by the debtholder.

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