Clauses & Controversies

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...

Would you rather date Ecuador or Argentina? Neither can pay their debts. But one brings your parents flowers while the other gets drunk at your Mom’s party and rides a Harley. That’s our understanding, anyway, of why investors are so sweet on Ecuador and so mad at Argentina after both countries conducted similar debt restructurings. We talk with Colby Smith, the extraordinary financial markets rep...

How Did We Get the Crappy CAC? Argentina made a lot of investors mad by proposing (threatening?) to pursue a divide-and-conquer strategy in its ongoing debt restructuring. The proposal added new jargon to the already-bewildering sovereign debt lexicon. Redesignation! Pac-Man! But what did Argentina really do? It all comes down to the collective action clause, or CAC. We talk with the brilliant Ann...

Why all the Sturm and Drang Over Force Majuere? Recently, thanks to COVID-19, there has been much talk about the otherwise generally obscure civil law concept of force majeure. Our dear friend, the incomparable Eric Posner, tells us how this concept tends to play out in the US context and why every major law firm in the country seems to be writing client memos on it. Of greatest interest to us is...

Where Did All the Secured Loans Go? Once upon a time, many governments could borrow in foreign markets only if they pledged assets to back the loan. Today, sovereigns almost never do this, although it happens in other debt markets. In Episode Four, we talk with Noel Maurer (George Washington University) about property rights and revenue pledges. Sovereigns used to promise creditors priority to cus...

Gold Clause Mumbo Jumbo We love to talk about the Gold Clause Cases from the 1930s and wonder why our colleagues are less enthusiastic. In this episode, we talk with constitutional law expert Gerard Magliocca (Indiana) about the cases, which are the subject of Gerard’s wonderful article, The Gold Clause Cases and Constitutional Necessity. The basic plot is that, in the 1930s, the U.S. needed to de...