Clauses & Controversies

The Long Shadow of Default The sovereign debt literature has somehow managed to overlook one of the biggest, most enduring debt defaults on record, involving one of the world’s richest democracies. We’re talking about the United Kingdom’s failure to pay its First World War debts owed to the United States. We talk with David Gill (University of Nottingham) about his wonderful new book, The Long Sha...

ESG investing What combines existential dread (climate change) with bewildering What counts as ESG investing? At times, it seems like almost anything could fall under that label. And does ESG investing really have the potential to drive the transition to carbon-neutrality? As sovereign debt specialists, we know only a little bit about the ESG world, and much of what we know comes from reading the...

Debt Ceiling Drama The drama around the U.S. debt ceiling should be low hanging fruit for a podcast about sovereign debt. But we have been unsure of the legal and economic implications. Do markets care about the debt ceiling? Is there any real risk of non-payment? Aren’t there are dozen obvious ways to borrow despite the ceiling? We ask these and other questions to expert business and economics re...

Domestic Debt, Financing Assurances, and other Fault Lines in Sovereign Debt Restructuring Ghana’s attempts to restructure its domestic debt have been a bit of a mess, repeatedly failing to win enough creditor support before (as of this recording) finally appearing to have succeeded. But some holders of domestic bonds appear to be getting better treatment. Reuters reporters Karin Strohecker and Jo...

Ghana's Restructuring: Why the Mess? Sovereign debt restructurings seem to be stuck in quicksand. The various players (IMF, China, commercial creditors, Paris Club, arbitration award holders, etc) each point to the others as the reason for the lack of progress. And the much ballyhooed Common Framework seems to have made little impact. Chelsey Dulaney of the Wall Street Journal joins us to talk abo...

Do Bondholders Care About Bankruptcy Access? Theory tells us that bondholders care whether sovereign debtors have access to a bankruptcy process. Fear that bondholders would react to such access negatively is what tanked the IMF’s Sovereign Debt Restructuring Mechanism proposal a decade ago. But do bondholders really care about bankruptcy access, or do other things matter more? Our guest, Rich Sch...

Fear of Fund” and the Bridgetown Initiative Sovereign debt has been very much in the news in early 2023 thanks to a combination of factors that have exacerbated debt crises in various parts of the world. Massive COVID expenditures, increasingly extreme climate events, the emergence of China as a major lender to weaker sovereigns and the rise in global interest rates are among them. Unsurprisingly,...

Bondholders Rights as a Function of Nationality Rather than Contract Recent debt restructurings have raised the question whether some investors in sovereign debt might have additional rights (or obligations) as a result of bilateral investment treaties between their home states and the debtor state. It seems strange to think that investors from, say, Ruritania might have different rights than inve...

The Bond King The name PIMCO is ubiquitous in the world of bond finance. But aside from its enormous size, why is PIMCO so important? Our guest this episode is Mary Childs, co-host of NPR's Planet Money podcast. Her book, The Bond King, tells the story of PIMCO's origins and of how Bill Gross transformed the bond markets, built PIMCO into a behemoth, and then lost power. She joins us to talk about...

Lessons from the U.S. Municipal Bond Cases? In a sovereign debt crisis, a government will sometimes argue that the country does not have to pay some of its debt, because it borrowed the money in violation of its own law, typically while a different government was in power. And in fact, domestic law typically does constrain the borrowing of countries and sub-sovereigns: debt ceilings, legislative a...

Ghana’s 2030 FUD Bond We learned a new term a few days ago: FUD. Apparently common in the crypto world, it refers to when panic about something spreads “fear, uncertainty and doubt.” An investor friend used the term to describe aspects of the Ghana 2030 bond. We had previously thought this bond was safe, since it benefits from a World Bank guarantee. But reading the contract terms more closely, th...

A Truly Gnarly Year Times are pretty bad for emerging markets, what with a surging dollar, interest rate increases, etc. But somehow, despite having a president with, ahem, eccentric economic views, Turkey's recent $1.5 billion bond issuance was reportedly way oversubscribed. So things are a bit weird. We've long admired and learned from the work of this week's guest, Sydney Maki of Bloomberg. Syd...

Please Sir, May I Read the Contract? Sovereign bonds are sold after distribution of a sales document -- a prospectus or offering circular -- that describes key risk factors and that summarizes or reprints the terms and conditions of the bonds. The sales document isn't the contract, or at least not the whole thing, because it typically makes clear investors will be bound by terms found elsewhere, s...

Pakistan’s Bizarro 2024 Bond Pakistan is in crisis and its bonds are in the toilet. One of its bond series though, the 2024, is not like the others. It has one of the highest CAC vote thresholds we’ve seen anywhere in the modern era. But that’s not it; best we can tell, the process by which votes are counted appears to be some weird historical holdover. How? Why? What? In this episode, we try to s...

Contracting for Home Field Advantage Virtually all international sovereign bonds include provisions designed to make it easier for investors to sue the sovereign after default. Choice of forum clauses, waivers of sovereign immunity, provisions addressing service of process, etc. Russia is a prominent exception where these clauses are absent, and this is one of many factors making it hard for inves...

Ukraine’s Dodgy Designations In its recent debt reprofiling, Ukraine asserted that it had the unilateral right to “re-designate.” The context here is the operation of the aggregated collective action clause (CAC), which allows the debtor to conduct an aggregated vote across multiple series of bonds to see if a restructuring proposal gains the support of the entire group. Ukraine claimed that it ha...

Why Did the Dog Not Bark? (or Why Did the Creditors Consent So Readily?) Ukraine’s gave creditors in its 2016 restructuring GDP warrants that were bizarrely uncapped.  Now, with expectations of post-war GDP shooting up, thanks to likely reconstruction support from the US and the EU, these warrants are potentially gold mines. Yet, just a couple of weeks ago, Ukraine was able to not only defer payme...

Making (Non?)Sense of the Russian CDS Auction CDS auctions intimidate us because there is so much that we don’t understand about how they are supposed to work. But there are others who, thankfully, understand a lot more not only about CDS auctions but also how they work in contexts such as those of Russian sovereign bonds. One of those gurus is Chris Spink of the International Financing Review (an...

Diaspora Bonds Remittances are an important source of capital for many countries. Though remittances often flow directly to family and close relations, many countries would like to tap this pool of capital directly. Diaspora bonds offer a potential solution, allowing countries to issue bonds to nationals living abroad or to others who, for philosophical reasons, want to lend. Recently, the issue h...

It’s a Mad, Mad World Pakistan’s debt repayment prospects were dicey even before the catastrophic floods. Now, a debt restructuring seems almost inevitable (to us, anyway). Nikou Asgari is one of the Financial Times’ brilliant capital markets reporters, who covers European debt and has also covered Pakistan’s debt crisis. We had originally intended to talk mostly about Pakistan. As it happened, we...

Is the Bottom Falling Out of the EM Sovereign Debt Market? The dollar is rising in value; interest rates are rising, borrowing costs for EM sovereigns are rising, and energy prices are rising. And then there is the continuing horrific war in Ukraine. Does this all, put together, spell disaster for the EM sovereign debt market? Alexandra Scaggs of FT Alphaville, one of our favorite financial report...

The New, New Syndicated Lending In the 1970s and 1980s, most sovereign lending took the form of syndicated bank loans. This changed after the 1980s debt crisis and the Brady plan, so that in from the 1990s on, sovereign bond markets have supplied most emerging market borrowing needs. For the last 10-15 years, even very poor countries have tapped the bond markets. Syndicated loans still exist, of c...

The Louisiana Purchase and the Origins of the Sovereign Bond Market Most of us learn the story of the Louisiana Purchase as one where the key players were the political leaders, namely, Thomas Jefferson and Napoleon Bonaparte. While they were undoubtedly key, economic historian Larry Neal suggests that this transaction would probably never have occurred but for the financial creativity of a set of...

What will the Price of Peace with Putin be? Reparations, war debts, post-war reconstruction, controlling inflation through interest rates . . . The topics at the top of the news feed today, thanks at least in part to the actions of an autocratic European leader in engaging in an unprovoked invasion of a neighbor, invoke so many of the issues that John Maynard Keynes wrestled with almost a century...

Has There Really Been a Russian Default? The 30-day grace period recently expired on Russian bond payments due in May, and the Russian government also failed to make a late-June payment deadline on other bonds. That's a default, right? We keep getting asked that question, and we keep answering something like: "Yes. Almost certainly. It probably is almost definitely a default." And then we get stra...