Clauses & Controversies

Debt Ceiling Drama The drama around the U.S. debt ceiling should be low hanging fruit for a podcast about sovereign debt. But we have been unsure of the legal and economic implications. Do markets care about the debt ceiling? Is there any real risk of non-payment? Aren’t there are dozen obvious ways to borrow despite the ceiling? We ask these and other questions to expert business and economics reporter Wailin Wong, of NPR’s The Indicator from Planet Money, who is (thankfully) much less confused than we are. Producer: Leanna Doty

Domestic Debt, Financing Assurances, and other Fault Lines in Sovereign Debt Restructuring Ghana’s attempts to restructure its domestic debt have been a bit of a mess, repeatedly failing to win enough creditor support before (as of this recording) finally appearing to have succeeded. But some holders of domestic bonds appear to be getting better treatment. Reuters reporters Karin Strohecker and Jorgelina do Rosario have somehow kept up with fast-developing events in Ghana, Sri Lanka, Argentina and other sovereign debt hotspots. They join us to talk about the implications of the Ghanaian domestic debt restructuring for other sovereign borrowers (e.g., Sri Lanka), the slow pace of debt restructurings under the G-20’s Common Framework (and otherwise), and the very strange debt buyback plan announced by Argentina. Producer: Leanna Doty

Ghana's Restructuring: Why the Mess? Sovereign debt restructurings seem to be stuck in quicksand. The various players (IMF, China, commercial creditors, Paris Club, arbitration award holders, etc) each point to the others as the reason for the lack of progress. And the much ballyhooed Common Framework seems to have made little impact. Chelsey Dulaney of the Wall Street Journal joins us to talk about the state of things globally and to help dispel our confusion about what is going on in Ghana. Producer: Leanna Doty

Do Bondholders Care About Bankruptcy Access? Theory tells us that bondholders care whether sovereign debtors have access to a bankruptcy process. Fear that bondholders would react to such access negatively is what tanked the IMF’s Sovereign Debt Restructuring Mechanism proposal a decade ago. But do bondholders really care about bankruptcy access, or do other things matter more? Our guest, Rich Schragger, is the author of City Power: Urban Governance in a Global Age, and an expert in local government law, urban policy, constitutional law and other matters. He also (along with Mitu) recently attempted to examine this question in the context of US municipal debt by looking at the disclosures made by borrowers about whether they do or do not have bankruptcy access. In this podcast, we ask Rich about his work on local governments, fiscal constitutionalism, city power and, of course, whether access to bankruptcy is as important as theory would suggest. Producer: Leanna Doty

Fear of Fund” and the Bridgetown Initiative Sovereign debt has been very much in the news in early 2023 thanks to a combination of factors that have exacerbated debt crises in various parts of the world. Massive COVID expenditures, increasingly extreme climate events, the emergence of China as a major lender to weaker sovereigns and the rise in global interest rates are among them. Unsurprisingly, there are lots of ideas being offered to help deal with the new problems being thrown up by the combination of these features. One of those ideas that has gotten the most traction is the Bridgetown initiative, the brain child of Avinash Persaud. In today’s episode, we ask Avi about Bridgetown and related matters having to do with dealing with the impact of extreme climate events on the debt of poor and climate vulnerable countries. Producer: Leanna Doty

Bondholders Rights as a Function of Nationality Rather than Contract Recent debt restructurings have raised the question whether some investors in sovereign debt might have additional rights (or obligations) as a result of bilateral investment treaties between their home states and the debtor state. It seems strange to think that investors from, say, Ruritania might have different rights than investors from Transylvania, even though they hold the exact same instrument, simply as a function of their nationality. Is this really the type of system that investors want? That sovereigns want? Livia Hinz of the European University Institute has done super interesting work on this topic, including on how treaty drafters are responding to the potential impact of investment arbitration on sovereign debt. She joins us to discuss whether investment arbitration really offers much of value to investors, its potential implications for sovereign debt restructurings, and how bilateral investment treaties are addressing these topics. Producer: Leanna Doty

The Bond King The name PIMCO is ubiquitous in the world of bond finance. But aside from its enormous size, why is PIMCO so important? Our guest this episode is Mary Childs, co-host of NPR's Planet Money podcast. Her book, The Bond King, tells the story of PIMCO's origins and of how Bill Gross transformed the bond markets, built PIMCO into a behemoth, and then lost power. She joins us to talk about the book and to explain PIMCO's significance to the bond markets. Producer: Leanna Doty

Lessons from the U.S. Municipal Bond Cases? In a sovereign debt crisis, a government will sometimes argue that the country does not have to pay some of its debt, because it borrowed the money in violation of its own law, typically while a different government was in power. And in fact, domestic law typically does constrain the borrowing of countries and sub-sovereigns: debt ceilings, legislative approval requirements, etc. Many foundational -- though now, largely forgotten -- legal cases involving such disputes arose in the context of U.S. municipal debt. In the mid to late 1800s, the U.S. Supreme Court decided literally hundreds of the cases, often ruling in favor of the municipality. Vincent Buccola and his co-author Allison Buccola wrote a wonderful article, The Municipal Bond Cases Revisited, reconstructing these cases. Vincent join us to talk about their findings and the implications for modern disputes (e.g., Puerto Rico). Producer: Leanna Doty

Ghana’s 2030 FUD Bond We learned a new term a few days ago: FUD. Apparently common in the crypto world, it refers to when panic about something spreads “fear, uncertainty and doubt.” An investor friend used the term to describe aspects of the Ghana 2030 bond. We had previously thought this bond was safe, since it benefits from a World Bank guarantee. But reading the contract terms more closely, the FUD has rubbed off on us. It isn't clear to us that the bond will escape the restructuring. Of course, it could be left out of the restructuring and be paid in full. But why would Ghana and holders of non-guaranteed bonds want this? If it is included in the restructuring, it could end up with the same treatment as everyone else, without getting better treatment on account of the guarantee. Time will tell. Producer: Leanna Doty

A Truly Gnarly Year Times are pretty bad for emerging markets, what with a surging dollar, interest rate increases, etc. But somehow, despite having a president with, ahem, eccentric economic views, Turkey's recent $1.5 billion bond issuance was reportedly way oversubscribed. So things are a bit weird. We've long admired and learned from the work of this week's guest, Sydney Maki of Bloomberg. Sydney joins us to talk about the state of the sovereign debt world in general and, in particular, about a couple of deals (and debt crises) that have perplexed us. What are the prospects for a restructuring of Suriname's debt, and how does the discovery of offshore oil complicated things? And what should we make of the recent blue bond transaction involving Barbados and the Nature Conservancy? We are skeptical of debt buybacks in general, especially when the country buys back only a fraction of debt at seemingly high prices. But maybe we are being too cynical about the blue bond deal? Sydney helps us make sense of what's going on. Producer: Leanna Doty