Clauses & Controversies

Central Banks, Executive Power, and Protecting Sovereign Assets Central banks are a bit of a problem for the law of foreign sovereign immunity. From one perspective, they look like commercial actors, and sovereign immunity generally doesn’t protect commercial acts. So it would seem that a sovereign’s creditors should be able to attach central bank assets. Many have tried. But from another perspect...

Value Recovery Instruments: A Contrarian View We often turn to veteran sovereign debt lawyer Mark Stumpf to help us understand the intricacies and history of the sovereign debt markets. He joins us to discuss a recent IMF report on the use of contingent debt instruments. In particular, we discuss Value Recovery Instruments, such as separately-traded GDP warrants. One view of these instruments, whi...

Post-Colonial Odious Debt Talk of odious debt generally asks whether the populace must repay money borrowed by a corrupt former dictator. The assumption is that the people have overthrown a domestic despot. But what about money borrowed while under colonial rule? Discussions of odious debt generally overlook this scenario. In fact, it’s generally assumed that a newly-independent state cannot disav...

The Back Story of Iraq’s Debt Restructuring Iraq after Saddam Hussein had massive, patently unpayable debts. Creditors viewed Iraqi oil exports as a valuable potential source of recovery and were chomping at the bit to get paid. Yet in the end, there were few successful creditor lawsuits and the haircuts imposed in the restructuring were among the most brutal in sovereign debt history. How did thi...

What Does the U.S. Owe Haiti for La Navasse? Sovereign debt and guano go together like ... they go together well, okay? Bird poop was once so valuable as fertilizer that Peru used it as collateral for sovereign debt. It was so valuable that, in the 19th century, the United States and other countries simply claimed sovereignty over islands with guano deposits. The only real limit was that the islan...

Zambia's Default and Restructuring Prospects Zambia was the first African country to default on its debt in the wake of COVID-19. It has significant debt to Chinese lenders as well as bond debt held by private investors. The latter may have a big enough stake to veto a restructuring and are in no mood to make concessions, ostensibly because they worry that Chinese lenders may get favorable treatme...

What Motivates China's Overseas Lending? Including lending by state owned enterprises, China appears to be the world’s biggest official creditor. Critics emphasize its lack of loan transparency. Some accuse China of using loans as tools to gain political or even territorial control. Are such criticisms fair? And what really motivates China's overseas lending. Pippa Morgan (Duke Kunshan)is a specia...

Do Investors Care About Odious Debts? The Tsarist Russian government used borrowed funds to repress domestic political movements. Vichy France borrowed while collaborating with the Nazis. King Leopold used borrowed funds to engage in horrific exploitation and repression in the Congo Free State, and these debts were later assumed by Belgium. There are nearly endless examples of truly odious soverei...

Haiti’s Odious "Independence Debt" In 1825, France imposed on Haiti an indemnity obligation of 150 million francs, ostensibly to compensate French plantation owners for Haitians having fought for and won their freedom in the revolution two decades prior. Haiti assumed this vast debt with French gunboats lurking just offshore, and all parties understood that it could not be repaid without massive b...

Covid (and Other) Contingencies We close out 2020 with all-star guests Lee Buchheit, Joyce Chang, and Jeromin Zettelmeyer to discuss contingent debt instruments. Many economists extol the virtues of GDP-linked bonds, but investors are wary. Is caution appropriate? And what about the biggest modern contingency: the risk that COVID-19 will cause more economic harm than expected? Even in normal times...

Restructuring Uncle Sam's Debt All together now (in a smarmy drawl): "Families must balance their budget, why not countries?" Okay, that's a stupid thing to say (although politicians love to say it). It's especially stupid to say about rich countries that borrow in their own currency. But this doesn't mean these countries can't or won't default, as the United States itself has demonstrated. We tal...

Best Crisis Management in HISTORY! Felix Salmon (Axios; Slate Money) knows more about financial markets than pretty much anyone we know. He joins us to talk about the U.S. government's engagement (or lack thereof) with debt issues in emerging markets and with multilateral institutions like the IMF. Will things be different under a Biden administration? Also: what just happened with that lawsuit ag...

Trees. Wrong. Barking Up. Jeromin Zettelmeyer has done foundational research on the economics and the law of sovereign debt. We discuss the G-20's "Common Framework," recently released to lay out a mechanism for coordinating debt relief to poor nations. Jeromin explains why Mitu and Mark are critical of the wrong aspects of the Common Framework and highlights the significance of the G-20's announc...

A View From the Sell Side Our guest Siobhan Morden is one of the most respected and widely-read sell-side analysts in the sovereign debt markets. We ask Siobhan about the process of assessing country risk and for insight about what to expect given the continuing economic fallout of the pandemic. Producer: Leanna Doty

Why Not Use GDP-Linked Bonds? Yannis Manuelides heads Allen & Overy’s Sovereigns and International Institutions practice group and has played a key role in shaping the legal terms of sovereign loan contracts, including the template for GDP-linked bonds. We talk with Yannis about why governments have been reluctant to use GDP-linked bonds and about different drafting practices in London and New Yor...

Judgments 1, CACs 0 If a bondholder sues and gets a judgment before a sovereign can restructure its debt, does the bondholder escape the restructuring? If so, will countries like Venezuela--which can't restructure any time soon and is increasingly a target of litigation in U.S. courts--be left without restructuring tools? Federal courts guru Andy Hessick (UNC Law) patiently explains why a restruct...

Will Asking For Covid Assistance Cause a Ratings Downgrade? Earlier this year, the Official Sector put in place a debt relief program for the poorest nations so that they would be able to utilize their scarce resources to ameliorate the havoc being caused by the pandemic. Some countries, however, have been concerned that asking for assistance will cause a ratings downgrade. But would it? What if t...

Pricing Those Pesky CACs Do the legal provisions in a bond affect its price? If law matters then, at least in an efficient market, one would think the answer would be yes. Weirdly, lawyers often scoff at this idea, even though they are implicitly suggesting their work does not matter. But the empirical question remains. There has been extensive research on the pricing impact of Collective Action C...

What Lies Ahead? Italy can borrow for free in the middle of a pandemic and one of the worst economic crises on record. What’s going on? Have massive infusions of central bank cash put us in a permanent state of easy money? Or are investors a bit too over-confident? We talk to Robin Wigglesworth, global finance guru and correspondent for the Financial Times, about what lies ahead in sovereign debt...

What's Your Damage? When a sovereign defaults on its debt, what should investors recover in damages? It seems to us that the conventional answer to this question is just wrong. We think. Pretty sure, actually. Well, probably. Two contracts professors who study sovereign debt discuss how they don't understand contracts damages. In sovereign debt cases. Producer: Leanna Doty

What if we hit Another Sudden Stop? The sovereign debt markets hit a sudden stop in March 2020, where new funding to emerging market sovereigns ceased and, instead, capital rushed out. There was a very real risk of multiple sovereign defaults. Thanks to the steps taken by institutions like the US Fed and the ECB to flood the markets with money, funding for many emerging market sovereigns has resum...

This Episode Will Become Void in 3...2...1 Prescription clauses say bondholder claims are "void" or "prescribed" unless presented for payment within some period of time. Six months ago, we barely knew these clauses existed. Now, dueling contenders to represent the Venezuelan government are publicly arguing about what the clauses mean. We talk about Venezuela's very unusual prescription clauses. Wh...

State Guarantees That Bite One in the Backside Our guest is legendary financial reporter, Joseph Cotterill, who famously chronicled the Pari Passu Saga for FT Alphaville in a previous incarnation. Joseph is now the Africa correspondent for the FT and we ask him about the corruption infused Tuna Bonds of Mozambique and South Africa’s tottering utility giant Eskom. In both situations, the largely un...

Contracting for Disaster(s) Borrowers must pay. Period. Even a natural disaster probably won't excuse non-payment. And while loan contracts can provide a wider range of excuses, they almost never do. Contract innovation is rare in sovereign debt markets. Except, sometimes, it happens. Jim Ho is part of the team that designed the Natural Disaster Clause for Barbados. We talk with Jim about this inn...

The Sovereign Debt Seating Chart Needs Bigger Chairs Big investors have been the dominant force on the investor side in recent restructurings. Rather than litigious hedge funds, big “real money” investors seem to be in charge. Has there been a fundamental shift in restructuring dynamics in sovereign debt cases? We talk with Anna Szymanski (Reuters Breakingviews) about this shift and what it might...