Clauses & Controversies

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...

What's With the Lawsuit Against Sri Lanka? Normally, holdouts keep a low profile until after a sovereign restructures its debt. For one thing, the government might not be able to pay them until after other creditors agree to reduce their claims. For another, getting a judgment quickly isn't a good strategy, since it takes a long time to collect and the post-judgment interest rate is so low. But Sr...

Argentina’s Never-Ending GDP Warrant Saga Academics have long been fans of GDP indexed instruments as a means of smoothing out economic shocks that a sovereign might suffer. The market, however, has not yet shown much enthusiasm for these creatures. For academics, who frequently like to think that the markets are just too slow to understand their ideas, it is tempting to conclude that this is a ca...

The Value of Building a Reputation for Repaying Debts: Overstated? A foundational question about sovereign debt markets is why, given the difficulty of enforcing against a sovereign, do sovereigns ever repay? The answer most often given is reputation. Sovereigns repay because they want to borrow again in the future. And this belief in the immense long term benefits of repaying has become an articl...

Gunboats, Marines and Bonds: The Ugly US Occupation of Haiti 1915-34 The historical tie between debt and gunboat diplomacy is ugly, rooted in imperialist and racist encounters with western powers. Few examples better illustrate the point than Haiti. In the first decades of the 20th century, Haiti was still repaying the enormous debt imposed by France as a condition of recognizing the new Haitian s...

The Unprecedented and Odious Haitian Independence Debt Several prior episodes have explored aspects of the history of the Haitian Independence Debt of 1825, in which Haitians were effectively required to pay to pay reparations to the French for winning their own freedom. The burden of this debt persisted for more than a century, and the economic effects are still felt today. Marlene Daut (Virginia...

Can Borrowing Costs for Tribes be Reduced? Tribal governments operate under borrowing restrictions that seem quite onerous. For example, they are limited in their ability to issue tax exempt bonds. Meanwhile, borrowing costs for tribal governments and tribal entities like casinos seem higher than warranted, at least in comparison to non-tribal counterparts. One explanation we have heard invokes le...

Sri Lanka, SriLankan Airlines, and... SriLankan Airlines used to be profitable, and one of us remembers it fondly. But those days are over, and the airline will need to restructure its debt. Will its bonds be easier or harder to restructure than Sri Lanka's sovereign bonds? Because Sri Lanka guaranteed the airline's bonds, one might assume the two types of bonds--airline and sovereign--would have...

How to Destroy the Collective Action Clause? Do the latest state-of-the-art version of CACs -- which have become standard in international bonds since 2014 – have a gaping hole in them? Surely not. Yet, a random conversation during the breaks to one of our recent podcasts made us look closer at some language in the new CACs. And that language seems to give issuers in crisis such as Sri Lanka an en...

Why do tribal casinos pay so much to borrow? The study of lending markets often overlooks borrowing by tribal governments as well as borrowing by tribal casinos. This is a relatively small part of bond markets, and lending markets more generally, but it raises important questions. For instance, it seems to us that tribal casinos -- at least the handful for which we have seen bonds and yields – pay...

The Legal Weeds of Sri Lanka's International Bonds The Sri Lankan debt crisis has deepened to the point that a restructuring seems inevitable, although the government still doesn't seem willing to acknowledge this. What effect will the legal terms of the country's international bonds have on the shape of a restructuring? The contracts include a mixture of older and newer CACs (with aggregation fea...

Ukraine-Russia: Who Should Have Priority to Get at Frozen Russian Assets? Western governments have frozen over $300 billion in Russian assets. That's a lot, but the list of potential claimants against those assets is quickly expanding as the invasion continues and more are harmed. And an urgent question on the table is who should have priority to get at those assets? Russian bond holders who funde...

Initiatives to Improve Sovereign Debt Markets Our guest is Deborah Zandstra of Clifford Chance, a key figure in the sovereign debt world who has been influential in initiatives to improve sovereign lending markets. She joins us to discuss the latest reforms to the Euro Collective Action Clauses and other initiatives, some positive and some (to put it politely) a bit misguided. Producer: Leanna Dot...

Russia-Ukraine Emergency Podcast 2: Subversive Drafting or Goofs The Russian international sovereign bonds, with their weird clauses, are a gift that keep on giving. The closer we look, the more perplexed we are about what some of these crucial clauses – such as the Alternative Payments provision, the pari passu clause, the (lack of) submission to jurisdiction – mean to say. Are they clever alloca...

Is Russian Sovereign Debt Now Worthless? Sanctions imposed against the Russian Federation are denying it access to foreign exchange reserves, and Russian bonds, trading around par just a short while ago, are now in distressed territory. Bloomberg (quoting former-Elliott guru Jay Newman) says the bonds are worthless, emphasizing that Russia hasn't waived sovereign immunity. It turns out that there...

Sri Lanka on the Brink? Trang Nguyen, Executive Direction and Emerging Markets strategist at JP Morgan, joins us to discuss both the current state of the EM world and the precarious debt situation in Sri Lanka in particular. In the days since we recorded this episode, Ukraine was invaded and the prices of a number of commodities may shoot through the roof. It is worth asking, in that context, how...

Is There a Plan for Dealing with the Sri Lankan Debt? Sri Lanka is fast running out of foreign exchange reserves but maintains that it will pay all its debts. And it has many of those: holders of its international bonds are the largest group, but there is also debt to China, India, and other bilateral creditors. We’re puzzled why the government continues to dither in the face of growing shortages...

Should we worry about increasing global (and US) debt? We confess that we do worry. But we also have heard others say this worry is misplaced. Our guest is John Cochrane of the Hoover Institution, a leading expert in financial economics and macroeconomics, who also happened to be Mitu's favorite professor at the University of Chicago. Maybe that experience (teaching Mitu) helped him develop the pa...

What's going on with Venezuela? And can we use it to talk about Blue Bonds? Venezuela has been in and out of the news. A potential forced sale of CITGO. Random creditor attempts to attach Florida assets. And a recent piece in the Financial Times about widespread environmental destruction, which requires capital (ideally in connection with a debt restructuring) to reverse. Sounds like time for anot...

The Environmental Benefits of the Belize Restructuring There has been a lot of hype about the Belize restructuring, especially the issuance of a so-called Blue Bond and the decision to devote some of the debt savings to marine conservation. Jill Dauchy is founder and CEO of the Potomac Group, which advised The Nature Conservancy on the deal. We ask Jill about the transaction and its key players--f...

The History Behind Lawsuits Over Old Chinese and Russian Sovereign Debt Lawsuits to enforce long-defaulted Chinese bonds (by an engineer in Alabama) and Russian bonds (by the wonderfully-named Carl Marks & Co.) have a storied place in sovereign debt lore. They sit at the intersection of history, politics, and economics, mixed with a bit of law a whole lot of international intrigue. We talk with hi...