Clauses & Controversies

Why Did the Dog Not Bark? (or Why Did the Creditors Consent So Readily?) Ukraine’s gave creditors in its 2016 restructuring GDP warrants that were bizarrely uncapped.  Now, with expectations of post-war GDP shooting up, thanks to likely reconstruction support from the US and the EU, these warrants are potentially gold mines. Yet, just a couple of weeks ago, Ukraine was able to not only defer payments on them, but get agreement on in effect capping them. Why did Heartless Hedgies leave giant gobs of money on the table?  What are we missing here? Producer: Leanna Doty

Making (Non?)Sense of the Russian CDS Auction CDS auctions intimidate us because there is so much that we don’t understand about how they are supposed to work. But there are others who, thankfully, understand a lot more not only about CDS auctions but also how they work in contexts such as those of Russian sovereign bonds. One of those gurus is Chris Spink of the International Financing Review (and Refinitiv/Reuters Financial). The Russian auction was especially complicated because Russia had different types of dollar and euro bonds out there, some that gave Russia a conditional right to make payments in rubles and some that didn’t. And then there is the fact that while Russia seems to have formally defaulted on many of its foreign currency obligations—therefore probably triggering cross default/acceleration provisions—it is still offering to pay everyone in rubles (regardless of whether they have the special ruble payment clause or not). Producer: Leanna Doty

Diaspora Bonds Remittances are an important source of capital for many countries. Though remittances often flow directly to family and close relations, many countries would like to tap this pool of capital directly. Diaspora bonds offer a potential solution, allowing countries to issue bonds to nationals living abroad or to others who, for philosophical reasons, want to lend. Recently, the issue has come up for Ukraine in its attempt to defend against Russia’s invasion. Many other countries, faced with war, hurricanes, pandemics, and other crises, have tried to tap their diasporas. But engineering diaspora financing has proven difficult. We talk to sovereign debt guru Steven Tepper (formerly of Arnold & Porter), who, over a thirty-year period, helped advise one of the most successful diaspora finance programs – that of Israel Bonds. Producer: Leanna Doty

It’s a Mad, Mad World Pakistan’s debt repayment prospects were dicey even before the catastrophic floods. Now, a debt restructuring seems almost inevitable (to us, anyway). Nikou Asgari is one of the Financial Times’ brilliant capital markets reporters, who covers European debt and has also covered Pakistan’s debt crisis. We had originally intended to talk mostly about Pakistan. As it happened, we recorded this episode on September 23, the day of Kwasi Kwarteng’s mini-budget announcement in the U.K. and two days before the Italian election that set Giorgia Meloni on course to becoming Prime Minister. So … let’s just say there was a lot to discuss. Nikou guides us through the economic and political context in Pakistan, the turmoil in the gilts market, and the political risk in Italy. Producer: Leanna Doty

Is the Bottom Falling Out of the EM Sovereign Debt Market? The dollar is rising in value; interest rates are rising, borrowing costs for EM sovereigns are rising, and energy prices are rising. And then there is the continuing horrific war in Ukraine. Does this all, put together, spell disaster for the EM sovereign debt market? Alexandra Scaggs of FT Alphaville, one of our favorite financial reporters and someone who has always been able to see the big picture better than we have, joins us to talk about the state of things. Producer: Leanna Doty

The New, New Syndicated Lending In the 1970s and 1980s, most sovereign lending took the form of syndicated bank loans. This changed after the 1980s debt crisis and the Brady plan, so that in from the 1990s on, sovereign bond markets have supplied most emerging market borrowing needs. For the last 10-15 years, even very poor countries have tapped the bond markets. Syndicated loans still exist, of course, but are rarely used for general budgetary purposes. Although over-simplified, that’s a fairly standard way to view modern sovereign borrowing. Only it turns out that it may be no longer true. Tightening global financial conditions have caused lots of countries to turn to syndicated loans. We had a general understanding that this was true, but had no idea of the scope until a recent article by our guest, Chelsey Dulaney of the Wall Street Journal. She joins us to talk about how low-income countries are increasingly relying on syndicated bank loans and about the potential risks. Producer: Leanna Doty

The Louisiana Purchase and the Origins of the Sovereign Bond Market Most of us learn the story of the Louisiana Purchase as one where the key players were the political leaders, namely, Thomas Jefferson and Napoleon Bonaparte. While they were undoubtedly key, economic historian Larry Neal suggests that this transaction would probably never have occurred but for the financial creativity of a set of largely unknown bankers in London and Amsterdam who, along the way, set the foundations for the modern international sovereign bond market. Producer: Leanna Doty

What will the Price of Peace with Putin be? Reparations, war debts, post-war reconstruction, controlling inflation through interest rates . . . The topics at the top of the news feed today, thanks at least in part to the actions of an autocratic European leader in engaging in an unprovoked invasion of a neighbor, invoke so many of the issues that John Maynard Keynes wrestled with almost a century ago. To talk about Keynes’ relevance to us today, and particularly in the context of the Ukraine-Russia situation, we are joined by Zach Carter, the author of the best selling book about Keynes and Keynesian ideas, The Price of Peace. That question of what price the world is willing to pay for peace with Mr. Putin is front and center as the conflict in Ukraine gets bloodier and more brutal by the day. Producer: Leanna Doty

Has There Really Been a Russian Default? The 30-day grace period recently expired on Russian bond payments due in May, and the Russian government also failed to make a late-June payment deadline on other bonds. That's a default, right? We keep getting asked that question, and we keep answering something like: "Yes. Almost certainly. It probably is almost definitely a default." And then we get strange looks. Do the sanctions imposed by the U.S. and other countries really prevent bondholders from receiving payment? Does a bondholder who opens an account to receive rubles violate the sanctions? If the answer is no, does giving bondholders this option mean Russia hasn't defaulted? If the answer is yes, do the sanctions let Russia off the hook, giving it a defense -- impossibility -- to bondholder lawsuits? And what's the point of all these sanctions anyway? We tackle these and other questions. Producer: Leanna Doty

What's With the Lawsuit Against Sri Lanka? Normally, holdouts keep a low profile until after a sovereign restructures its debt. For one thing, the government might not be able to pay them until after other creditors agree to reduce their claims. For another, getting a judgment quickly isn't a good strategy, since it takes a long time to collect and the post-judgment interest rate is so low. But Sri Lanka was just sued by a large holder of its bond that matures in July of this year. And the lawsuit asks not just for money damages, but for a pari passu injunction that would effectively block any restructuring from going forward. What gives? Has Sri Lanka stupidly bumbled its way into legal trouble? (Well, sort of... the government hasn't exactly played its cards right.) Or is this just a negotiating ploy? No guest this week. Producer: Leanna Doty