Clauses & Controversies

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

Deborah Zandstra, a key figure in the sovereign debt world, discusses initiatives to improve sovereign lending markets, including Euro Collective Action Clauses reforms. The podcast also explores challenges faced by women in the legal field, the evolution of CACs in Euro area debt, unintended consequences of financial regulations, and complex debt management challenges.

Russia-Ukraine Emergency Podcast 2: Subversive Drafting or Goofs The Russian international sovereign bonds, with their weird clauses, are a gift that keep on giving. The closer we look, the more perplexed we are about what some of these crucial clauses – such as the Alternative Payments provision, the pari passu clause, the (lack of) submission to jurisdiction – mean to say. Are they clever allocations of risk where the Russians put the risk of a sanctions regime on investors, or are they drafting goofs? Which court or tribunal gets to decide? Surely not some local court in Moscow? Beyond these weird contract clauses, the invasion raises a host of questions that don't have clear answers. For instance, what happens to the Ukrainian debt (including debt incurred to resist the invasion) if Russia takes control of a substantial part of the country? Does it become Russian debt? Producer: Leanna Doty

Is Russian Sovereign Debt Now Worthless? Sanctions imposed against the Russian Federation are denying it access to foreign exchange reserves, and Russian bonds, trading around par just a short while ago, are now in distressed territory. Bloomberg (quoting former-Elliott guru Jay Newman) says the bonds are worthless, emphasizing that Russia hasn't waived sovereign immunity. It turns out that there is a lot of weird stuff in the Russian bonds, although they might not be as worthless as one might think. We dive into some of the details. Also: why is Ukraine insisting that it will continue to pay its own sovereign debt? Surely if any country had a good excuse for non-payment, it would be Ukraine. Producer: Leanna Doty

Sri Lanka on the Brink? Trang Nguyen, Executive Direction and Emerging Markets strategist at JP Morgan, joins us to discuss both the current state of the EM world and the precarious debt situation in Sri Lanka in particular. In the days since we recorded this episode, Ukraine was invaded and the prices of a number of commodities may shoot through the roof. It is worth asking, in that context, how much more precarious the Sri Lankan debt situation becomes if fuel costs (among other crucial items) rise by 50% or more? And how many more Sri Lankas are out there, poised to fall into default? Producer: Leanna Doty

Is There a Plan for Dealing with the Sri Lankan Debt? Sri Lanka is fast running out of foreign exchange reserves but maintains that it will pay all its debts. And it has many of those: holders of its international bonds are the largest group, but there is also debt to China, India, and other bilateral creditors. We’re puzzled why the government continues to dither in the face of growing shortages of fuel and other essential imports. Is this another case of politicians refusing to recognize the reality of a debt crisis? If not, why doesn’t the government seem to be taking any meaningful steps towards resolution (like involving the IMF). Benjamin Parkin of the Financial Times has been closely following the crisis and joins us to talk about the economic and political situation in Sri Lanka. Producer: Leanna Doty

Should we worry about increasing global (and US) debt? We confess that we do worry. But we also have heard others say this worry is misplaced. Our guest is John Cochrane of the Hoover Institution, a leading expert in financial economics and macroeconomics, who also happened to be Mitu's favorite professor at the University of Chicago. Maybe that experience (teaching Mitu) helped him develop the patience to field our questions about how to think about the current state of gargantuan sovereign debt stocks. We also talk about the merits of a shift to long-term debt financing. Producer: Leanna Doty