Clauses & Controversies

Are CACs Unilateral Modification Clauses? We have always understood the collective action clause (CAC) in a sovereign bond to allow the bond issuer to propose a modification to the bond, which will bind everyone if approved by the requisite proportion of holders. Typically the sovereign is proposing to restructure its debt. This is more or less what bonds governed by NY law say, but bonds governed by English law appear to allow bondholders to gang together to modify the bond without the issuer's consent. Can that be right? We don't really think so, but we don't see anything in the text of the standard CAC in English law bonds that requires issuer consent. Imagine a Euro area issuer is nearing crisis and holders of its local law debt decide to switch their bonds to, say, English law. Can they do this unilaterally? Maybe so. Producer: Leanna Doty

Contract innovation in sovereign debt is rare, sparking interest around the new 'flip clause.' This clause allows investors to bypass selected governing laws, coming from concerns over New York legislation. The duo explores the origins of this idea through early attempts in Sri Lanka and Suriname, highlighting its complexities. They share skepticism about its real-world effectiveness, viewing it as more symbolic than practical. A discussion on alternatives reveals simpler solutions, while weighing the costs and implications for investors wraps up their analysis.

A new legal case about defaulted Imperial Chinese bonds has ignited interest once more. The hosts explore intriguing plaintiff identities and the entertaining context behind them. They dive into the old bond structures and propose a modern interpretation involving pari-passu clauses. Key discussions include overcoming statute of limitations hurdles and the complexities of U.S. courts' reach under the Foreign Sovereign Immunities Act. Historical evidence, like U.S. bank participation, adds depth to the argument, sparking frustration over the dismissive judicial opinions.

Total Return Swaps are at the center of a heated discussion about sovereign borrowing. The hosts dive into how these derivatives are used by governments like Angola, raising questions about their impact on existing creditors. Is collateralized sovereign lending a new threat to transparency in debt management? They explore the mechanics of these deals, the potential for dilution, and the implications for pricing in the market. With a nod to historical trends and moral hazard, the conversation underscores the classic challenges of sovereign lending.

Cambodia’s “Dirty Debts” to the US — Redux In the 1970s, the US allowed Cambodia to finance the importation of rice and other agricultural commodities. The debt remains unpaid. One version of this story is that successor Cambodian governments have refused to pay these “dirty” debts. In this telling, the US used the loans to prop up a friendly but illegitimate Cambodian regime. Although the US shipped food, loan proceeds mostly financed the Cambodian military, which the US used as a proxy in the fight against the North Vietnamese and Khmer Rouge. Meanwhile, the US was bombing the Cambodian countryside, destroying domestic food production and contributing to a humanitarian crisis. To make matters worse, it turns out most of the food was sent to countries other than Cambodia. To some observers, the US bears a significant share of responsibility for the Khmer Rouge’s ultimate rise to power. Decades later, after indescribable suffering (caused at least in part by US interference) the US wants money back. The contours of this story are largely true, but the real story of the PL-480 “Food for Peace” program is more complicated. Today’s episode is about what we have found so far and the questions that still remain open. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5561161 Producer: Leanna Doty

What if POTUS wanted an OBBD? Let us say, purely hypothetically, that there is a point at which some combination of the spending excesses of the One Big Beautiful Bill, the government shutdown, a rejection by the Supreme Court of tariff mania, and more, result in a shortfall of revenues for the current administration. And let us also say that POTUS goes to his brains trust to ask how best to do an OBBD/R (One Big Beautiful Default/Restructuring). What path might the brains trust take? And what about the option of taxing the treasury holdings of foreign governments, which the administration has already signaled its interest in? Producer: Leanna Doty

The Invasion Tax The lawsuit over Ukraine's $3 billion bond debt to Russia seems to be on hold (maybe forever) in the English courts. And maybe there is no way for the Russian government to force repayment. Still, the debt is a minor cloud hanging (along with many bigger ones) over Ukraine. It would be nice if there was a way to make it go away permanently. Might there be? We talk about a common provision in a sovereign bond's Taxation section — we aren't sure how common, but it certainly isn't unique to Ukraine — that lets the issuer tax investors who have a connection to it other than simply holding its bonds. As written, this provision would allow Ukraine to impose a 100% tax on bond payments to Russia. This may not be what the drafters had in mind, and it opens the door to some unsavory tax shenanigans, but an Invasion Tax doesn't seem too objectionable. Also: "Whatever it takes" means "whatever it takes!" Except when it means something else. Producer: Leanna Doty

The hosts dive into the Trump administration's possible rescue of Argentina's economy, raising questions about political motivations. They explore the baffling nature of Argentina's negative pledge clauses in sovereign bonds, highlighting their lack of protection for bondholders. The discussion contrasts how these clauses differ from typical structures, pondering whether they represent drafting mistakes or clever legal design. Join the conversation as they unravel complex financial terms and speculate on the implications for market stability!

Ukraine's Expansive "Fiscal Laws" Clause International sovereign bonds, and particularly those issued under English law, often include a clause providing that payments are subject to the applicable "fiscal and other laws." Usually, the clause makes clear this refers to fiscal laws in the “place of payment” (e.g., Luxembourg). Separately, international bonds also provide that, if the issuer imposes any taxes on bond payments, it must "gross up" payments to foreign investors, so the tax does not reduce their payments. Together, the two clauses usually immunize foreign investors from taxes imposed by the issuer but leave room for taxes imposed by the place of payment. Ukraine's bonds are different. They seem to leave room for Ukraine to impose its own "fiscal" law on payments. Arguably, they leave investors subject even to local laws that aren't fiscal in nature. Might this be a source of leverage for the country in its negotiations with GDP warrant holders, who have so far refused to make concessions in restructuring talks? Producer: Leanna Doty

The Greek GDP Warrant Drama Greece’s debt situation has improved remarkably, from default status in 2012 to investment grade in 2025. A few weeks ago though, Bloomberg reported on a brewing drama with the GDP warrants that were offered to investors in the brutal 2012 restructuring. Apparently, Greece has elected to exercise its right to call the warrants, and holders are yelling bloody murder at the low price at which Greece says it is entitled to buy. Every side has lawyered up and claims the other side is acting unreasonably. We speculate wildly on what might actually be going on and what is likely to happen. Producer: Leanna Doty