Clauses & Controversies

Industry insiders Mitu and Mark discuss the rise and fall of sustainability linked bonds, questioning their credibility and effectiveness compared to traditional green bonds. They delve into challenges aligning climate policies with SLBs, explore liquidity concerns in the market, and analyze the pitfalls hindering the success of this evolving financial product.

Equity Receiverships and Sovereign Debt Observers of sovereign debt markets have long lamented the inability to impose restructuring terms on dissenting creditors. Indeed, there are currently several bills pending – some of which are utterly bonkers, in our view – in New York to change the law in ways that will limit holdout activity in sovereign debt cases. But what if the tools to comprehensively restructure sovereign debt are already there in New York law? Our guest, Nate Oman (William and Mary) has a new paper, Restructuring Ruritania (link below), examining the potential use of the equity receivership in this context. The equity receivership has a long history (e.g., railroad reorganizations) and has been discussed as a potential solution to state debt crises and other areas. We talk to Nate about what an equity receivership would look like in the sovereign debt context and the advantages (and limitations) it offers. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4656147 Producer: Leanna Doty

How Much of the YPF Judgement Will Burford, Realistically, Recover? Burford Capital, a highly sophisticated litigation finance operation, has won an enormous judgment ($16 billion, where its share is upwards of $6 billion) against the Republic of Argentina. The question is how much of this judgment Burford is realistically likely to be able to collect on. Using a recent FT Alphaville article, “Dog Catches Argentine Car” by Jay Newman as our foil, we try to break down the likelihood of Burford getting a recovery. We think a significant recovery is plausible – particularly if the new administration in Argentina decides to default and renegotiate all of the myriad claims against it once and for all. Producer: Leanna Doty

Greg Makoff, author of a forthcoming book on Argentina's 2001 debt saga, discusses the mistakes made in the country's debt restructurings, the complexity of the litigation, and the lessons that can be drawn for Argentina's current debt troubles.

Delve into Argentina's FRANs, with a drafting glitch leading lucky investors to 100% annual interest. Ben Heller discusses dodgy exit amendments and sovereign states raising defenses. Explore bond structures, market dynamics, and complex financial instruments. Uncover ethical dilemmas in financial agreements and regulations for abuse prevention in financial restructuring.

What to Make of the Stay Order in Hamilton Reserve Bank v. Sri Lanka? Strange things have been going on in the Hamilton Reserve Bank v. Sri Lanka case in New York federal court. Recently, in response to requests from the US and other governments, the judge agreed to stay the lawsuit for 6 months before giving HRB a judgment. We have long been confused about why HRB wants a judgment so quickly, and we're no less confused now. Does HRB have a stake big enough to block a vote to modify payment terms? We have assumed it does but are now less sure. Even if HRB can block a vote on payment terms, we're wondering if Sri Lanka can use exit consents (which HRB's position is clearly too small to veto) to twist its arm into going along with a restructuring. Otherwise, why all the fuss? Clearly the judge thinks HRB creates risks to the restructuring, and the U.S. and other governments seem to agree. We try to figure out what is going on. Producer: Leanna Doty *The episode was updated to acknowledge an error made by Mitu & Mark during the recording of the podcast. Mitu & Mark reference Judge Preska instead of Judge Cote, who issued the stay.

China’s Defaulted War Debts We’ve long viewed China’s defaulted debt from the first half of the twentieth century through the lens of the communist government refusing to pay back the defaulted debts of Imperial China. But historian Elya Zhang’s wonderful work on China’s debts documents how the story is much more complex and, in particular, how the Imperial debt is but a sliver of the Chinese sovereign borrowing that was subsequently defaulted on. Much of it, it turns out, was war related borrowing of various types done during the 1938-49 period. And the stories underlying what happened are, as Elya tells us, are fascinating. Producer: Leanna Doty

Political scientists Alexandra Zeitz and Lauren Ferry discuss how China's emergence as a major lender has impacted debt restructuring processes. They delve into topics such as Chinese lending in Africa, government relationships with private creditors, confusion surrounding debt contracts, negotiating IMF programs with borrowing countries, limitations and changes in sovereign debt architecture, unanswered questions on local currency debt, and coordination challenges in recent restructuring episodes.

Priscila Azevedo Rocha and Todd Gillespie discuss the investigation of sustainability-linked bonds, their effectiveness in combating climate change, risk allocation, alternative models, data adequacy, and the role of labels in investment decisions. They also explore retail markets, global youth activism, financial engineering, and the slow progress of the market.

Kenza Bryan, sustainability-linked bonds expert, discusses the unambitious nature of sustainability-linked bonds, GOP backlash against ESG lending, fake carbon credits, and lack of global consensus on debt relief for environmental objectives. She emphasizes the need to engage with new ideas and reform existing systems for climate improvement.