Clauses & Controversies

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 the country needs this assistance to put it on a better path to economic recovery? What factors go into a ratings determination? Do contract terms make a difference? On this episode, we ask our good friend, ratings guru Elena Duggar, to help us understand the answers to these questions. Producer: Leanna Doty

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 Clauses (CACs), with conflicting findings. We talk to financial economists Elena Carletti, Paolo Colla, and Steven Ongena about their recent studies of CAC pricing with one of us. Link to recent paper below. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2817041 Producer: Leanna Doty

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 markets and about index funds and other key players who will shape the market in the coming years. Producer: Leanna Doty

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 resumed. But real economic activity continues to slow and the prospect of another sudden stop is real. To discuss what might be done to mitigate the cost if this were to happen, our guests are financial and international economics gurus Patrick Bolton and Ugo Panizza, of Columbia University (NY) and the Graduate Institute (Geneva) respectively. Producer: Leanna Doty

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. What do they mean? Actually, do the clauses even exist? No guest this episode. The report mentioned in this episode can be found here: https://tinyurl.com/y5z2kbzu Producer: Leanna Doty

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 unexamined problem of off balance sheet state borrowing via guarantees seems to have played a key role in the creation of the debt problems these countries face. Producer: Leanna Doty

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 innovation, its origins in Grenada's hurricane clause, and about whether the clause could be expanded to cover pandemics and other disasters. Producer: Leanna Doty

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 portend for the next wave of sovereign restructurings. Also: Is there any hope for Lebanon? We tap into Anna’s deep expertise about the serious crisis in that country. Producer: Leanna Doty

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 reporter at the Financial Times, about whether we might be missing some important aspects of this story. Producer: Leanna Doty