Clauses & Controversies

Argentina’s Never-Ending GDP Warrant Saga Academics have long been fans of GDP indexed instruments as a means of smoothing out economic shocks that a sovereign might suffer. The market, however, has not yet shown much enthusiasm for these creatures. For academics, who frequently like to think that the markets are just too slow to understand their ideas, it is tempting to conclude that this is a case of “if we build it, they will come”. Argentina’s experience with its GDP warrants, however, might urge caution. Our guest is Vladimir Werning (formerly of the Argentine ministry of finance and JP Morgan) and one of the most of the most thoughtful participants in the markets. Producer: Leanna Doty

The Value of Building a Reputation for Repaying Debts: Overstated? A foundational question about sovereign debt markets is why, given the difficulty of enforcing against a sovereign, do sovereigns ever repay? The answer most often given is reputation. Sovereigns repay because they want to borrow again in the future. And this belief in the immense long term benefits of repaying has become an article of faith for many in the business. But how does this belief hold up against the empirics? Or, as our guests on this episode – Paolo Manasse, Matilde Faralli and Ugo Panizza -- put it in a recent article (written with Francesa Caselli): What are the long term benefits of repaying when everyone else is defaulting? Their example is Columbia, widely thought to be the only large Latin American country that did not default during the 1980s. They find that Columbia benefited in the short and medium term from avoiding explicit default, but the benefit did not last the long term. Producer: Leanna Doty

Gunboats, Marines and Bonds: The Ugly US Occupation of Haiti 1915-34 The historical tie between debt and gunboat diplomacy is ugly, rooted in imperialist and racist encounters with western powers. Few examples better illustrate the point than Haiti. In the first decades of the 20th century, Haiti was still repaying the enormous debt imposed by France as a condition of recognizing the new Haitian state nearly a century earlier. Then the U.S. marines arrived. Laurent Dubois (University of Virginia) is a leading historian on Haitian colonial history and joins us to talk about the U.S. incursions into Haiti, beginning in 1914 when the marines spirited away the country's gold reserves in the dead of night for “safekeeping.” In the course of occupying Haiti, and effectively putting the country into receivership, the U.S. engineered still more lending, designed both to protect U.S. commercial interests and to reduce the influence of European investors. Producer: Leanna Doty

The Unprecedented and Odious Haitian Independence Debt Several prior episodes have explored aspects of the history of the Haitian Independence Debt of 1825, in which Haitians were effectively required to pay to pay reparations to the French for winning their own freedom. The burden of this debt persisted for more than a century, and the economic effects are still felt today. Marlene Daut (Virginia) is a specialist in Caribbean, African American, and French colonial literary and historical studies. She joins us to more fully explore the history, including how France, the United States, and other powerful states worked to ensure that the debt was repaid. Producer: Leanna Doty

Can Borrowing Costs for Tribes be Reduced? Tribal governments operate under borrowing restrictions that seem quite onerous. For example, they are limited in their ability to issue tax exempt bonds. Meanwhile, borrowing costs for tribal governments and tribal entities like casinos seem higher than warranted, at least in comparison to non-tribal counterparts. One explanation we have heard invokes legal uncertainty--for instance, about the scope and effect of a tribal government's waiver of sovereign immunity, the potential role of the federal government in a case of debt distress, and the availability of federal bankruptcy proceedings. Our guest is Kevin Washburn, Dean of Iowa Law and a leading expert in federal Indian law and the law of gaming. He joins us to talk about the relationship between the federal government and tribal nations and about ways to improve access to capital for tribal governments. Producer: Leanna Doty

Sri Lanka, SriLankan Airlines, and... SriLankan Airlines used to be profitable, and one of us remembers it fondly. But those days are over, and the airline will need to restructure its debt. Will its bonds be easier or harder to restructure than Sri Lanka's sovereign bonds? Because Sri Lanka guaranteed the airline's bonds, one might assume the two types of bonds--airline and sovereign--would have similar legal terms and restructuring mechanisms. But that is not the case. A number of provisions in the airline's bonds could give Sri Lanka's restructuring advisors a headache. Producer: Leanna Doty

How to Destroy the Collective Action Clause? Do the latest state-of-the-art version of CACs -- which have become standard in international bonds since 2014 – have a gaping hole in them? Surely not. Yet, a random conversation during the breaks to one of our recent podcasts made us look closer at some language in the new CACs. And that language seems to give issuers in crisis such as Sri Lanka an enormous tactical advantage in that debt restructuring that is coming up. Alas, Russia has the same advantage. Producer: Leanna Doty

Why do tribal casinos pay so much to borrow? The study of lending markets often overlooks borrowing by tribal governments as well as borrowing by tribal casinos. This is a relatively small part of bond markets, and lending markets more generally, but it raises important questions. For instance, it seems to us that tribal casinos -- at least the handful for which we have seen bonds and yields – pay more to borrow than non-tribal casinos. Does the difference reflect perceived credit risk? The legal uncertainties about lending to tribal entities? In this era of ESG, should investors consider whether these loans help achieve tribal development objectives? Our guest is Dave Jordan, of the Wisconsin pension fund, and he tries to educate us about the ways of this market. Producer: Leanna Doty

The Legal Weeds of Sri Lanka's International Bonds The Sri Lankan debt crisis has deepened to the point that a restructuring seems inevitable, although the government still doesn't seem willing to acknowledge this. What effect will the legal terms of the country's international bonds have on the shape of a restructuring? The contracts include a mixture of older and newer CACs (with aggregation features) and one of the stranger "limitations on liens" provisions we have seen. Andres de la Cruz (formerly of Cleary Gottlieb) has worked on some of the most complicated sovereign debt restructurings in recent decades (Greece, Argentina, Uruguay, among others). He joins us to discuss the nuances of Sri Lanka's sovereign bonds. Prepare to enter the weeds. Producer: Leanna Doty

Ukraine-Russia: Who Should Have Priority to Get at Frozen Russian Assets? Western governments have frozen over $300 billion in Russian assets. That's a lot, but the list of potential claimants against those assets is quickly expanding as the invasion continues and more are harmed. And an urgent question on the table is who should have priority to get at those assets? Russian bond holders who funded Putin's government? Ukrainian refugees whose homes have been destroyed? Families of deceased journalists? Surely, the answer is NOT: bondholders. Producer: Leanna Doty