Clauses & Controversies

Tortious Interference and Inter-Creditor Duties Creditors in sovereign debt restructurings often complain about other creditors. And creditors often try to limit what other creditors get (at least indirectly, via most favored nations clauses, comparability of treatment, etc.). Can these efforts sometimes create a risk of liability? Does that risk even extend to official creditors? In the recent Zambian restructuring negotiations, rumor has it that the doctrine of tortious interference with contract was invoked when commercial creditors felt that official creditors were expecting them to make unrealistic sacrifices. Andrew Wilkinson (Weil, which advised the Zambia External Bondholder Steering Committee) joins us to talk about the restructuring of Zambia's debt and the question of inter-creditor duties. Producer: Leanna Doty

El Salvador’s Warrants: Bukele’s Folly? El Salvador has issued a new bond, using part of the proceeds to buy back some bonds that mature in the relatively near term. The issuance includes a detachable warrant that pays up to an additional 4% if El Salvador does not get an IMF program in place soon (or achieve a higher credit rating). The issuance has been characterized as a way to convince investors that El Salvador really is serious about striking an IMF deal. But the whole thing strikes us as loony tunes. Which is it? We ask EM guru Ben Heller. Producer: Leanna Doty

The Latest in the Argentine GDP Warrant Saga: Drafting Goof or Sneaky Drafting? There are so many intriguing aspects of the latest installment of the Argentine GDP Warrant Saga. This time, from Judge Preska in the SDNY, Argentina scores a big, and for us, totally unexpected victory. Argentina’s lawyers, at a very late stage, discovered a magic bullet that no one seems to have realized was there. Mark doesn’t like to use the term “contractual landmine”, but he does here. Mitu applauds. Producer: Leanna Doty

Lessons from the 1980s Debt Crisis The 1980s debt crisis began in Mexico and engulfed countries around the world, leading, via the Brady Plan, to the revival of the bond markets. Beyond that, we confess to relatively little knowledge about this fundamental episode in sovereign debt history. For so many of the leading lights of the contemporary sovereign debt world, the Latin American debt crisis was where they cut their teeth. The lessons they took from that era shaped the choices they made over the succeeding decades. Our guest is Jerome Sgard (SciencePo), who joins us to talk about his book, The Debt Crisis of the 1980s, which taps into new archival material and draws on interviews with many of the key participants. We ask Jerome about this key decade in the evolution of the modern sovereign debt architecture. Producer: Leanna Doty

A Way to Use Frozen Russian Assets to Help Ukraine? There has been much chatter lately about a proposal from Lee Buchheit, Daleep Singh and Hugo Dixon to address concerns in Western nations about using frozen Russian assets to get Ukraine much needed war financing. One might ask why these nations are so concerned about confiscating Russian assets when they have already frozen the assets, seemingly in perpetuity. But apparently, the difference matters quite a lot. Our guests, Ingrid Brunk and Paul Stephan, are two of the most thoughtful and careful thinkers about international law and they help us understand the virtues and pitfalls of this new, and very creative, proposal. Producer: Leanna Doty

Ukrenergo Confusion Rumor has it that holders of bonds issued by Ukrenergo, the state-owned corporation that runs Ukraine's electricity distribution system, expect to get better treatment in a debt restructuring, even though their bonds are guaranteed by the state and at least arguably can be forced to vote alongside holders of Ukrainian sovereign bonds (whose votes could swamp those of the Ukrenergo investors). Do the documents for the Ukrenergo bonds allow this? Or is there some other explanation for why holders of the corporate bonds expect better treatment. We are ... confused. Do not expect clarity. Producer: Leanna Doty

Who Benefits from Lifting Sanctions on Buying Venezuelan Bonds? Banning U.S. parties from buying Venezuelan bonds was probably a bad idea. But was it a good idea to lift the ban last fall? Investors apparently sold the Biden administration on the idea that lifting the ban would yield big benefits: bonds had migrated into the hands of parties acting as proxies for U.S. adversaries like Russia. Lifting the ban would cause the bonds to migrate back to U.S. investors, giving them (and, indirectly, the U.S. government) a seat at the table when a restructuring eventually happens. That was the story, anyway. But does it make sense? Or were investors selling the Biden administration a bill of goods, advocating for a policy change that would enrich them without doing squat to change the geopolitics of Venezuelan debt? Kejal Vyas (Wall Street Journal) has covered the machinations behind the policy shift, and he enlightens us about all things Venezuela. Producer: Leanna Doty

The Last Sovereign Bond in New York Due to litigation over the PDVSA 2020 bond, all future issues of sovereign bonds in New York have been canceled, effective immediately. (PDVSA is quasi-sovereign, but whatever...) You may have heard that New York’s highest court has ruled that investors cannot enforce sovereign bonds, period. Well, maybe that's not quite what it held – okay, not even remotely – but it is how some in the market are reacting. In fact, the New York Court of Appeals did nothing unusual. It held that Venezuelan law decides whether the collateral pledge backing the PDVSA 2020 bonds is valid but that, even if invalid, New York law will decide whether and how this affects investors. Some are complaining that this ignores the contractual choice of law provision designating New York's law as governing. But if investors are surprised, they shouldn't be, and there is nothing unique or strange about New York's conflicts law. Anyway, no one has said the bond is unsecured. No need for all the bedwetting. Producer: Leanna Doty

Something Black in the Lentils at Ukrenegro A few weeks ago, there was an announcement that some of the creditors of the Ukrainian electric company, Ukrenegro, wanted their debt restructuring talks to be separate from any broader Ukrainian debt restructuring. And the prices of the Ukrenegro bonds (backed by a sovereign guarantee) shot up. This intrigued us. Why did the market suddenly see new value in these bonds, simply because of an announcement? Our old friend, Chris Spink, one of the best sovereign debt reporters in the business, talks with us about what might be going on. We can't help but speculate… Producer: Leanna Doty

Back to the Future (Again) -- Russian Frozen Assets Episode In recent months, there has been much talk about what to do with frozen Russian assets and, in particular, whether they can be repurposed to aid Ukraine in its fight against the Russian invasion. This is not the first time that large amounts of Russian assets have been frozen though, with heated debates about whether to expropriate the frozen funds. In this podcast we talk to Professor Lauge Poulsen of UCL about one of these prior freezings, from the early 1900s. Indeed, the 1918 default of Soviet Russia on investors in Tsarist Russian bonds is still one of the largest ever sovereign defaults and it (along with other expropriations) then resulted in widespread freezing of Russian assets overseas. Lauge and his co author, Eileen Denza, have a fascinating article about the negotiations between the UK Foreign Office and the Soviets over these frozen assets and the ultimate resolution of all of the various claims and counterclaims (a process that took close to three quarters of a century). The article, “Settling Russia’s Imperial and Baltic Debts” appears in the American Journal of International Law. Producer: Leanna Doty

Tierra del Fuego and Tinfoil Hats The financial press has mostly overlooked the recent debt restructuring by Argentine province Tierra del Fuego. (To be fair, Mark has overlooked it too.) But there were aspects of the deal that might strike some as a bit coercive – like an initial proposal to pay investors who consented early more than investors who took more time, and different payments ultimately made to consenting and non-consenting creditors. Why bother using such coercive tactics, when they arguably weren't needed to get the deal done? Were the tactics even coercive? Should conspiracy theorists see a broader pattern in which issuers are using coercive tactics in minor restructurings so as to create a precedent for their use in big ones? We put on our tinfoil hats and speculate. Producer: Leanna Doty

Can Someone Explain What is Happening to SLBs? A year and a half or so ago, we were working on a paper with UVA’s Quinn Curtis on how the promises being made in the typical “use of proceeds” Green Bonds were empty. In the course of that project, we had loads of conversations with industry insiders, who largely agreed, but said that we were studying a thing of the past. The product of the future was the sustainability linked bond (slb). Unlike boring “use of proceeds” bonds, these had real incentives and were going to replace the 1st generation simplistic products. Now, at the end of 2023, we are hearing that this product is in disfavor in the markets. Why? What’s going on? Not sure we have answers – but we sure have questions and speculations. Producer: Leanna Doty

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

Argentina's 2001 Debt Saga Revisited Argentina's 2001 default spawned nearly 15 years of litigation, culminating in the (in)famous pari passu injunction. Many episodes of the saga have been told in isolation, but it is complicated—FRANs, pari passu, Lock Law, RUFO, etc.—and, until recently, we didn't know of anything that captured it in full. Our guest, Greg Makoff, has written a forthcoming book that manages to tell the entire story clearly without sacrificing either the drama or the complexity. The book is Default: The Landmark Court Battle over Argentina's $100 Billion Debt Restructuring. We talk to Greg about mistakes made (many, many mistakes) in the course of Argentina's 2005 and 2010 debt restructurings and about whether lessons can be drawn for the country's current debt troubles. Producer: Leanna Doty

What the FRAN? This episode is on Argentina's famous FRANs (floating rate accrual notes). The notes were intended to protect holders against the risk that the country's credit would deteriorate... and boy did they ever. Due to a drafting glitch, or a simple failure of imagination, the FRANs wound up earning a few lucky (well, smart) investors somewhere around 100% annual interest. Argentina's unsuccessful effort to avoid paying also raised some entertaining questions of contract law. It's not common for sovereign states to raise the unconscionability defense. Ben Heller joins us to talk about the FRANs, with some bonus discussion of dodgy exit amendments. Producer: Leanna Doty

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

China’s Impact on Sovereign Debt Restructurings There has been much chatter (a lot of it out of Washington) about how China is mucking up the financial architecture for sovereign debt restructurings. Given the political and strategic biases of much of the chatter, it is often hard to separate out real claims from bullshit. Political scientists, Lauren Ferry and Alexandra Zeitz, in their paper, “China, the IMF, and Sovereign Debt Crises”, have dug into the question. Using both qualitative and quantitative data, they document and describe how the debt negotiation processes for distressed countries with the IMF has materially changed in the wake of China’s emergence as a major lender. In the podcast, we discuss, among other things, the general question of China’s impact on the debt restructuring processes today, the measures they use in their analyses, and what is likely to happen in the foreseeable future. Producer: Leanna Doty

Dodgy SLBs We’ve been intrigued by the potential of sustainability-linked bonds. In theory, they should improve on green, “use of proceeds” bonds by providing incentives for issuers to invest in emissions reductions and other climate-related objectives. That’s why many in the green finance world were excited about them. But how are they working out in practice? Priscilla Azevedo Rocha and Todd Gillespie of Bloomberg talk to us about their in-depth investigation of these creatures (with Akshat Rana). We talk about how SLBs work (or don’t work) to help ameliorate climate change, how they conducted their investigation, how we might follow up on it, and what they think the future of the future of these products is. Producer: Leanna Doty