Clauses & Controversies

Veil Piercing and State-Owned Entities Disappointed creditors can attach a sovereign's assets when used for commercial activity in a foreign state. But much commercial activity is conducted not by the sovereign itself but by state-owned or controlled firms. In principle, this keeps assets away from creditors. But creditors have had recent success arguing they should be able to reach SOE-owned assets on the theory that the firm is the state's alter ego. Mark's recent article (linked below) tries to make sense of this somewhat incoherent area of law. Our dear friend, the incomparable Anna Gelpern, joins us to talk about veil piercing in sovereign debt cases, and about what lies ahead in sovereign debt markets. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3801204 Producer: Leanna Doty

Covid is Just Like the _______ Crisis In the current economic context, with many worried about the risk of widespread financial distress among emerging market sovereigns, scholars and policymakers often turn to the lessons of the Latin American debt crisis of the 1980s. But is that the right precedent? Do other historical episodes, such as the Great Depression, offer more insight? Maybe the current moment is unique? Economic historian Juan Flores Zendejas is an expert on financial crisis and sovereign debt and one of the most insightful thinkers about the uses of history in understanding financial markets and international economic relations. He joins us to discuss the economic consequences of the pandemic. Producer: Leanna Doty

Can Courts Help Right Historical Wrongs? In the early 1900s, the first genocide of the 20th century occurred in what was then the colony of German Southwest Africa (now Namibia). Perpetrated by the German government, decades of widespread seizure of property and imposition of forced labor were followed by the mass killing of tens of thousands of the Ovaherero and Nama peoples. In recent years, there has been talk of reparations, but these talks have not resulted in payment. So descendants of the genocide victims filed a lawsuit in federal court in New York, which ultimately failed. Matthias Goldmann has written insightfully about that lawsuit—and about many, many other things as well. He joins us to discuss, in the first half of the episode, Germany’s colonial past in Africa and efforts to use the courts to redress historical wrongs. In the second half, we get to ask Matthias about modern sovereign debt problems, especially Mozambique’s challenge to the enforceability of loans associated with the tuna bond scandal. Producer: Leanna Doty

Anna Gelpern and Christoph Trebesch discuss their unprecedented study on the legal terms of loans by Chinese state-owned entities to borrower governments around the world. They shed light on innovative and unexpected contracting practices, explore non-comparable treatment clauses in debt restructuring, examine leverage and pricing in Chinese lending, and emphasize the importance of carefully drafting provisions in contracts.

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