Clauses & Controversies

Anne-Laure Delatte, the French economist, discusses concerns about the increasing European sovereign debt size and the bank-sovereign doom loop. Topics include the ECB's role in policy, implications of Marine Le Pen in France, and the challenge of addressing debt issues in the Eurozone.

Bendy Bonds Are Better (Say it Five Times Fast) Our guest this week is Ben Heller, one of the most insightful observers of the sovereign debt markets, and someone we often turn to for a sense of the investor’s perspective on the markets. Recently, Ben and a colleague published a proposal for so-called Bendy Bonds – state-contingent debt instruments that automatically give countries a short breathing spell in times of crisis. State-contingent debt is a favorite of many economists, but proposals for new instruments—like GDP-linked bonds—have generally gone nowhere. But there has been a great deal of interest in Bendy Bonds. We talk with Ben about the idea behind Bendy Bonds and about recent events in the markets such as the claim by some that the Pac Man and Redesignation strategies proposed by Argentina in its recent restructuring were innocent attempts to correct for flaws in the latest version of the ICMA CACs. Ben, who was on the key drafting committees for the ICMA CACs, gives us some rare and invaluable legislative history. https://www.hbk.com/uploads/documents/Bendy-Bonds.pdf Producer: Leanna Doty

Eminent guest Lee Buchheit discusses EU bond debt, social bonds, and the G-20's Common Framework. They also delve into the weird clauses in Zambian eurobonds and the possibility of debt restructuring under the common framework. Interesting topics include joint and several liability, the Paripasu clause, and the removal of certain clauses in post-2014 Euro bonds.

Guest Matt Wirz, a Wall Street Journal reporter, discusses the rise of ESG investments and green bonds, questioning the credibility of these initiatives. Topics include greenium premiums, Biden administration's impact on ESG policies, and incentivizing environmental behavior through financial mechanisms.

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 perspective, central banking is a quintessential government function, which the law of sovereign immunity should protect. Ingrid Wuerth (Vanderbilt) is an expert in the law of foreign sovereign immunity, and in international law in general, and joins us to talk about the protections afforded to central banks. Bonus discussion of the President’s power to unilaterally block creditors from going after a foreign sovereign’s U.S.-based assets. The paper mentioned in this episode can be found here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3125048 Producer: Leanna Doty

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, which appears in the IMF report and elsewhere, is that they should be standardized and easily tradable. Mark thinks this view is misguided—that VRIs should be nontransferable and bespoke. He joins us to explain why. We also get to take advantage of Mark’s encyclopedic knowledge of sovereign debt history to discuss the Louisiana Purchase, gunboat diplomacy, and other topics. Producer: Leanna Doty

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 disavow these debts. Likewise, the new state commits expropriation and must pay compensation if it takes back property appropriated by a colonial oppressor. Our guest is the brilliant Gregoire Mallard (the Graduate Institute), whose work inspired us to wonder why discussions of odious debt tend to overlook post-colonial obligations. Gregoire’s recent book on this and related matters, Gift Exchange: The Transnational History of a Political Idea is available at https://www.cambridge.org/core/books/gift-exchange/DF1BB308065A9D2974095A6FC6242549 Producer: Leanna Doty

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 this happen? Our guest is economic historian Simon Hinrichsen, who draws on his wonderful recent research to answer our questions. Producer: Leanna Doty

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 island couldn't belong to another recognized sovereign nation. That the island was inhabited, perhaps by people who viewed themselves as part of a sovereign nation, was unimportant. La Navasse is one such island, situated roughly 35 miles off the coast of Haiti, and a source of contention between the U.S. and Haiti to this day. Our guests are the wonderful Miami Herald reporter, Jacqueline Charles, who has written about La Navasse for the Miami Herald, and our friend and brilliant colleague, Guy-Uriel Charles. Producer: Leanna Doty

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 treatment. Tommy Stubbington, one of the terrific emerging markets reporters at the Financial Times, helps us make sense of the Zambian debt. Producer: Leanna Doty