Clauses & Controversies: Recent Episodes
Mitu Gulati & Mark Weidemaier
Clauses and Controversies: A Podcast about International Finance, Contract Clauses and the Controversies Surrounding These Clauses
Ethiopia’s Value Recovery InstrumentsValue recovery instruments are a great idea in theory and a disaster in practice. The idea is to let investors share in the upside of a country’s recovery. But governments rarely want to pay and the instruments quickly migrate into the hands of investors with little stake in the recovery. Everyone involved looks to exploit loopholes. And since the instruments seemingly are drafted at the last minute, there are plenty of those. But maybe after several tries, Ethiopia has found a way to crack the code?Producer: Leanna Doty
$240 Billion?!Venezuela's debt is purportedly $240 billion, larger than previous estimates by far. What gives? Is this a way to signal to investors that they should be prepared to take larger-than-expected haircuts? Or, maybe more likely, a signal that favored creditors — insiders? oil majors? — will have their claims inflated and thus can expect outsized recoveries? We probably won't know until the IMF completes its usual rigorous assessment of the country's debt and debt sustainability. Oh, wait... Producer: Leanna Doty
Is it Finally Time to Restructure Venezuela’s Debt?Ever since Venezuela was allowed to hire advisors on its debt restructuring, rumors have been swirling about whether the restructuring might be attempted even before an IMF Debt Sustainability Analysis. Such a scenario is plausible, given the current context. But is it good for the Venezuelan people? Hell no. This is potentially going to be the most complicated debt restructuring in history. And it is going to be done without the involvement of the only competent institution (despite our frequent criticisms of it) in this space? In prior eras, we’d count on the US Treasury Department to insist on IMF oversight and active involvement. But can we count on that today?Producer: Leanna Doty
1917 Tsarist BondsWe know we promised to talk about Venezuela. But we got distracted by a filing in the district courts in DC. A claim for payment on Tsarist bonds from 1917, being made in 2026. How could we pass that up? We also confess to being intrigued that the lawyers for Russia have asked that the judge in DC — Judge Friedrich — give Rule 11 sanctions against the plaintiffs. There are clear potential barriers to this claim on the merits but asking for Rule 11 sanctions on this basis seems a bit rich. Plus, we love the resuscitation of old Tsarist or Imperial bonds.Producer: Leanna Doty
The Most Amazing RevolutionIn spring 1917, the United States government lent money to the new Provisional Government in Russia, which had promised both domestic reform and to maintain the fight against Germany. Within a few short months, the Bolsheviks took over and repudiated all prior international debt. Still unpaid, the loans have now been in default nearly 150 times longer than they were current. We have talked about these loans before, but not about the repeated attempts (in the 1930s and 1990s) to reach a settlement. Some of the loan proceeds went to efforts to keep the Bolsheviks from power? Did the succeeding governments have to repay those debts? Producer: Leanna Doty
Something Black in the Lentils:We are back with our favorite type of podcast — speculation about legal implications built around facts that are constructed entirely from rumor and innuendo. Weird stuff is going on with the Senegalese yield curve. And we wonder whether the weirdness might relate to Senegal’s desire to avoid triggering margin calls on its TRS contracts (which we'd really like to see). If there is some jiggery pokery going on - perhaps with respect to auctions of the three-year maturity - is that bad faith? Possibly, maybe, kinda sorta. We aren't English lawyers. We're barely even lawyers. But maybe there is something strange afoot. Surely it will all soon be disclosed, especially if Senegal defaults and all these contracts go . . . well . . . Producer: Leanna Doty
Foreign Civil War EntanglementsOver the years, the U.S. has supported the losing side in numerous foreign civil wars. It has emerged from these entanglements as both a debtor and a creditor. In each case, the U.S. government's formal position has been clear: the post-civil war government succeeds to the rights and obligations of the prior government. That is, the winning side must pay debts incurred by the prior government, and it may enforce rights that accrued to that government. The U.S. has consistently taken this position even when the rights and obligations at issue relate to its attempt to keep the winning side from attaining power (e.g., debts accrued in the context of arms sales to the U.S.-supported side). But pragmatically, the U.S. government's position has been more fluid, ranging from benign neglect (i.e., simply not asserting a claim to payment) to finding technical legal arguments to justify writing off a debt (e.g., deeming the debt uncollectible). Producer: Leanna Doty
If Only YPF’s Bylaws Had Been Governed by Texas LawAnd… poof! The sound of a $16 billion judgment going up in smoke. We talk about the Second Circuit’s decision in the YPF case, which we read largely as a way to make an excessively large judgment disappear without ruling on any difficult (and recurring) issues of US law. YPF’s shareholders got screwed, but then again their rights were governed by Argentine law. Even in foreign courts, it is hard to win when the sovereign gets to set the rules. We also talk about those fun-lovin’ Texas legislators. Pardner, everything’s bigger in Texas. Except the pre-judgment interest rate. That there is just a whole lot smaller. Has been for 30 some years.Producer: Leanna Doty
The $500 Million American “Financial Aid” to ChinaIn 1942, the Americans provided $500 million in financial aid to Chiang Kai-shek’s Nationalist government in China. Described as a “financial counterpart” to Lend-Lease aid, the credit — intended to help stabilize the Chinese economy and support its war effort — did not provide for principal repayment, interest payments, or state a maturity. The apparent intent was to negotiate terms in a post-war settlement of accounts, when the parties could agree on the “benefits to be rendered the United States in return” for the credit. That agreement never happened and, as best we can tell, the status of the credit remains unclear. (Was it a loan? A conditional grant? If the latter, were the conditions fulfilled?) The US doesn’t seem to have ever asserted a right to collect, but we also haven’t seen anything formally relinquishing the potential claim or formally acknowledging the credit as a grant. Producer: Leanna Doty
Ethiopia and Senegal: Debt Shenanigans?A set of recent articles in the FT by sovereign debt guru Joseph Cotterill suggest to us (reading between the lines) debt shenanigans in both Ethiopia and Senegal. We can’t figure out exactly what is going on in these two cases, but there is enough there for us to engage in wild speculation. In Ethiopia, the bondholders seem to be irate that some big player (aka China) is interfering with their deal and they are threatening to use. In Senegal, someone (aka BOAD?) is engaged in a moral hazard play by buying up gobs of local Senegalese debt; this, at a time when the international market has shut out Senegal thanks to disclosure shenanigans. Producer: Leanna Doty
in Washington DC, want the economy humming again. But how? The debt stock is enormous and the range of claims so vast that normal techniques are unlikely to work. And typically, before anything could happen, the IMF would need to go in and assess the actual situation on the ground. All this takes time. But we imagine that the folks in Washington DC want to declare their adventure a success, and soon. Is that impulse consistent with an orderly, comprehensive debt restructuring? For that matter, what would a restructuring look like if we also assume that Washington wants to line its own pockets with Venezuelan oil revenues, and perhaps to give preferential treatment to oil major creditors (to entice them back into Venezuela)? We don’t have answers — but we suspect that those folks in DC don’t either.Producer: Leanna Doty
Are CACs Unilateral Modification Clauses?We have always understood the collective action clause (CAC) in a sovereign bond to allow the bond issuer to propose a modification to the bond, which will bind everyone if approved by the requisite proportion of holders. Typically the sovereign is proposing to restructure its debt. This is more or less what bonds governed by NY law say, but bonds governed by English law appear to allow bondholders to gang together to modify the bond without the issuer's consent. Can that be right? We don't really think so, but we don't see anything in the text of the standard CAC in English law bonds that requires issuer consent. Imagine a Euro area issuer is nearing crisis and holders of its local law debt decide to switch their bonds to, say, English law. Can they do this unilaterally? Maybe so.Producer: Leanna Doty
The clause allows investors to opt out of the governing law and enforcement jurisdiction initially chosen in the debt instrument. We have some questions about the clause and doubt that in its current form it will gain widespread acceptance. Right now, it seems more symbol than substance — a way to metaphorically flip off the New York legislature. Producer: Leanna Doty
Imperial (Defaulted) Chinese Bonds (Again)Yes, one of us might have sworn up and down that we would never do another episode about defaulted Imperial Chinese bonds. But a brand new case out of the DC federal courts has changed our minds. The case got the back of the hand from the district judge, but the arguments being made were not as weak as a quick glance at the opinion might suggest. Dare we hope for the entertainment value provided by an amicus brief filed by the Trump administration in support of the plaintiffs?Producer: Leanna Doty
Total Return Swaps There have been reports in the financial press about the use of Total Return Swaps to provide credit to governments (e.g., Angola), often in situations where the government can't otherwise borrow on capital markets. As best we understand them (i.e., badly) these are derivatives backed by sovereign bonds and sometimes cash as collateral. The collateral reduces borrowing costs and the debt stays off books, since the obligation to pay the bonds is contingent (since the bonds are only collateral). We increasingly hear scuttlebutt suggesting these deals are commonplace, and some of our investor friends complain that TRSs effectively subordinate existing creditors. We don't understand TRSs well, and we have questions. Isn't this just garden variety debt dilution? Does it violate the negative pledge clause?Producer: Leanna Doty
Cambodia’s “Dirty Debts” to the US — ReduxIn the 1970s, the US allowed Cambodia to finance the importation of rice and other agricultural commodities. The debt remains unpaid. One version of this story is that successor Cambodian governments have refused to pay these “dirty” debts. In this telling, the US used the loans to prop up a friendly but illegitimate Cambodian regime. Although the US shipped food, loan proceeds mostly financed the Cambodian military, which the US used as a proxy in the fight against the North Vietnamese and Khmer Rouge. Meanwhile, the US was bombing the Cambodian countryside, destroying domestic food production and contributing to a humanitarian crisis. To make matters worse, it turns out most of the food was sent to countries other than Cambodia. To some observers, the US bears a significant share of responsibility for the Khmer Rouge’s ultimate rise to power. Decades later, after indescribable suffering (caused at least in part by US interference) the US wants money back. The contours of this story are largely true, but the real story of the PL-480 “Food for Peace” program is more complicated. Today’s episode is about what we have found so far and the questions that still remain open.https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5561161Producer: Leanna Doty
What if POTUS wanted an OBBD?Let us say, purely hypothetically, that there is a point at which some combination of the spending excesses of the One Big Beautiful Bill, the government shutdown, a rejection by the Supreme Court of tariff mania, and more, result in a shortfall of revenues for the current administration. And let us also say that POTUS goes to his brains trust to ask how best to do an OBBD/R (One Big Beautiful Default/Restructuring). What path might the brains trust take? And what about the option of taxing the treasury holdings of foreign governments, which the administration has already signaled its interest in?Producer: Leanna Doty
Argentina Again The Trump administration says it will do “whatever it takes” to rescue the Argentine peso and bond yields, saving buddy Javier Milei from electoral disaster. We do not think the U.S. Treasury can simply dole out money to Milei. If the administration does not want to go to Congress for permission (it generally does not), and if the Mexican bailouts of 1982 and 1995 are indicators, the U.S. Treasury will ask the Argentines to provide collateral of some sort. (The Falklands, maybe?) If so, holders of Argentine sovereign bonds might wonder whether they are entitled to some collateral too. Sovereign bonds have negative pledge clauses, which generally prevent the borrower from creating new secured debt without securing bondholders on equivalent terms. So, we looked at some of the negative pledge clauses in Argentine bonds. They are weird, but don't seem very protective. These are beautiful clauses, folks, BEAUTIFUL. Looks like the U.S. gets collateral, bondholders don't. Total disaster for them!Producer: Leanna Doty
law on payments. Arguably, they leave investors subject even to local laws that aren't fiscal in nature. Might this be a source of leverage for the country in its negotiations with GDP warrant holders, who have so far refused to make concessions in restructuring talks?Producer: Leanna Doty
The Greek GDP Warrant DramaGreece’s debt situation has improved remarkably, from default status in 2012 to investment grade in 2025. A few weeks ago though, Bloomberg reported on a brewing drama with the GDP warrants that were offered to investors in the brutal 2012 restructuring. Apparently, Greece has elected to exercise its right to call the warrants, and holders are yelling bloody murder at the low price at which Greece says it is entitled to buy. Every side has lawyered up and claims the other side is acting unreasonably. We speculate wildly on what might actually be going on and what is likely to happen.Producer: Leanna Doty
Some Questions, Now That it's About 3 Years Since Russia’s Default It has now been around 3 years since Russia’s invasion of Ukraine, which prompted EU and US sanctions and a default on Russia’s external bonds. The prescription clause in these bonds says that Russia’s obligations become void unless investors make claims within three years of the date payment is due. What does it mean to “make” a “claim”? Filing a lawsuit would do the trick. What about an email requesting payment? An automated message, which the depository sends out every payment date? Should bondholders have sought an agreement tolling the prescription period? Since they didn't, does Russia now have what amounts to an option to pay past due amounts? And what about interest on unpaid amounts? Does Russia owe interest on payments that were impossible to make due to sanctions? Producer: Leanna Doty
Sovereign Debt Odd & Ends An odds and ends podcast about unrelated sovereign debt topics. First up, Venezuela. Most investors have been sitting around waiting for an eventual restructuring and lifting of US sanctions. But a handful of funds sued early, got judgments, and have spent years trying unsuccessfully to collect. If they had succeeded, they would have recovered much more than similarly-situated creditors who waited around for a restructuring deal. But they failed and, in a bizarre twist, have asked the court to vacate their judgments, effectively returning them to the creditor queue. We cry foul. Next up, another fiscally-irresponsible and increasingly author ... well, it's the United States. We discuss the crazy (and terrifying) idea that the US might unilaterally extend the maturities of government debt. Producer: Leanna Doty
Is There Any Law of State Succession? Syria, Ukraine and Greenland.The law of state succession to obligations comes mostly from a different era, when war and conquest were legal and borders changed with some frequency. Today, we are faced with multiple situations where borders might change due to war. Does the law tell us what happens to the debts attributable to the acquired territory? And how do we translate legal rules that evolved in the 18th and 19th centuries into the modern era? Paul Stephan (Virginia), one of the foremost international law experts, joins us to discuss.Producer: Leanna Doty
What if Trump Discovers that Unpaid UK (and French) Debt From WWI?The current administration has tossed concepts such as “special relationships” with allies out the window. The administration seems willing to apply just about any leverage it has to obtain concessions from allies, including concessions that might reduce the US debt. Seen in that light, what will happen when Trump and the Musketeers discover that the UK and France have hundred-year old unpaid debts? With interest, that unpaid debt would now amount to a few trillion dollars. Enforcing these debts would be near impossible, except that the UK and France own a whole bunch of US Treasuries. Could the administration try to force a swap of those Treasuries into longer term obligations? Or try to use the US government's claims against the UK and France as a setoff, reducing payments on US debt held by those governments? Seems loony. But loony is normal these days.Producer: Leanna Doty
What Might a Syrian Debt Restructuring (Eventually) Look Like?There is little doubt that Syria needs to restructure its debt, among other reasons to pave the way for rebuilding after a long and brutal civil war. It strikes us as too early to envision what that process will look like, but we can identify some of the key issues. The country owes a lot to official creditors, especially Iran and Russia. Much of this was off-books and was used for the military or otherwise to support former President Bashar al-Assad's repressive regime. Not surprisingly, we are already hearing the term "odious debt" raised to suggest these debts need not be repaid; there may be a separate doctrine allowing repudiation of certain war-related debts. We talk about whether these (arguable) doctrines of international law have any relevance here and about the potential role of the U.S. in a debt restructuring.Producer: Leanna Doty
User Fees on the US Treasury Strategic Gold Crypto ReserveTrump plans to reduce the US debt. We are missing some of the steps, but here are the ones we have identified so far:1. Golden passports2. Tariffs3. Maybe not tariffs4. Okay, tariffs5. Something about gold6. User fee on treasuries7. Crypto8. ???We speculate about what we are missing. Maybe it’s a red Tesla?Producer: Leanna Doty
Why Do We Care Who is Behind HRB’s Sri Lankan Lawsuit?The Hamilton Bank litigation against Sri Lanka appears to be reaching the end. Or is it? The stays that were granted during restructuring talks have implications for future sovereign debt restructurings, we think. Especially Venezuela’s restructuring, which is going to be a huge undertaking. And then, there may be more drama to come in the HRB lawsuit itself. Sri Lanka says it needs more discovery, apparently to dig into whoever might be behind the lawsuit. Why?Producer: Leanna Doty
Greece’s (Ratings) Rise From the Ashes – Wow, but also How?We study sovereign restructurings, which means we primarily study countries going into and struggling to get out of crisis. Serial defaulters such as Argentina and Ecuador are frequent topics on our podcasts. And given how bad things were a decade ago, and its history of frequent defaults before that, we might have expected that Greece would join Argentina and Ecuador as among our more frequent podcast topics. And, indeed, Greece is back. But not because it is back in crisis. Instead, it is because it has had a remarkable rise from the ashes to almost investment grade. To discuss this rise, our two good friends from Moodys Ratings, Sarah Carlson and Elena Duggar, join us.Check out an overview of Moodys Sovereign Methodology here: https://ratings.moodys.io/sovereign-methodologyProducer: Leanna Doty
Getting "J. Screwed" Sounds Better than Getting "Argentina'd"In the world of corporate debt, everyone seems to be talking about "Liability Management Exercises," where a borrower, with a subset of creditors, exploits loose loan covenants in ways that leave other creditors screaming mad. Even better, these LME techniques have clever names: "trap doors," getting "J. Screwed," etc. And while the worlds of sovereign and corporate debt don't overlap all that much, we wonder if litigation over LMEs can tell us anything about sovereign debt restructurings. Alas, we don't know much about corporate debt. Thankfully, Andrew Kissner (Morrison Foerster) joins us to dispel our confusion.Producer: Leanna Doty
Is Sri Lanka’s Loss Reinstatement Provision a Penalty?Two of our favorite things to talk about are innovative contract clauses and ancient illogical contract doctrines that unexpectedly bite in the ass. A few weeks ago, we walked through the Loss Reinstatement provisions for Ghana and Zambia. We asked the question of whether those provisions might run afoul of the antiquated and bizarre (to us) anti-penalty doctrines under English and New York law. English law having recently become more permissive with regards to permitting penalty type clauses – if they have a legitimate business purpose -- we speculated about whether the Zambia/Ghana clauses might pass muster. Maybe. But Sri Lanka’s version of the clauses is under New York law. And New York law on this matter is still stuck in the dark ages, best we can tell. So, does the Loss Reinstatement provision for Sri Lanka run afoul of the penalty doctrine?Producer: Leanna Doty
Sri Lanka's New MFC Clause — Have "Contorts" Arrived in Sovereign Debt? The doctrine of tortious interference with contracts is one of several that sits at the intersection of tort and contract law. These "contorts" confuse law students — lawyers and law professors too! — but can be important in practice. If not anticipated, they can create problems for unsuspecting parties and lawyers. Has Sri Lanka’s novel Most Favored Creditor clause created problems for creditors who participated in the country's restructuring? The MFC clause is confusing in places. It simultaneously seems to contemplate Sri Lanka striking a deal with holdouts (after litigation ends) and to quite aggressively try to prevent such a deal from happening. We discuss whether this creates risks for restructuring creditors and wonder why such an aggressive clause was viewed as necessary. Producer: Leanna Doty"Shades of Spring" Kevin MacLeod (incompetech.com)Licensed under Creative Commons: By Attribution 4.0 Licensecreativecommons.org/licenses/by/4.0/
YPF and Argentina’s Contributions to International Law Argentina owes over $16 billion in connection with its nationalization of state oil company YPF. A federal judge in the Southern District of New York is considering whether to order Argentina to hand over its shares in YPF — technically located outside the United States — to pay part of the judgment. Can it do that? Paul Stephan (Virginia) joins to talk about how foreign state property located outside the United States is (and is not) protected by the law of foreign sovereign immunity, residual common law protections, and doctrines like comity. Producer: Leanna Doty"Shades of Spring" Kevin MacLeod (incompetech.com)Licensed under Creative Commons: By Attribution 4.0 Licensehttp://creativecommons.org/licenses/by/4.0/
The Penalty Doctrine in Contract LawWe've never been fans of the contract law rule against penalties. Why can't parties (sophisticated ones at least) agree to suffer a penalty in the event of breach? We’d ordinarily avoid this topic, because the doctrine makes little sense and the issue doesn’t come up much in the sovereign debt world. But recently, a couple of sovereign restructurings (Ghana and Zambia) have used “Loss Reinstatement Provisions.” At least on their face, these provisions seem vulnerable to challenge under the penalty doctrine, since, if the sovereign defaults on the restructured deal, they impose a loss that seems untethered to the injury creditors have suffered. Would these new clauses be enforced if challenged? The contracts in question are both under English law, which we don't know much about. But that does not stop us from speculating and arguing.Producer: Leanna Doty
A New Competition For Law (and Jurisdiction)?Jurisdictions famously compete for businesses to use their corporate law. Less discussed is the competition for having one’s law chosen to govern contracts. But it happens. Sovereign debt lawyers in England and New York can, if they have a few drinks in them, can be quite entertaining in their sniping at each other about whether English or New York law is better for sovereign issuers. And the sovereigns for their part, seem to only care about what they have done in the past, regardless of what the lawyers say or what court decisions come down (remember pari passu and Judge Griesa in New York – nothing changed). But recently, as a result of the attempts of a few members of the New York legislature to try and mess with sovereign restructuring framework (“improve”, some would say – but not us), a couple of issuers have put in place provisions that allow them to choose to switch governing law (but not jurisdiction?) mid stream, in the event that New York actually passes some daft legislation. We think this is all great fun to talk about. Angry emails about how we should take these matters more seriously should all be sent to the address of Hamilton Bank in Nevis. Producer: Leanna Doty
An Execution Sale is Not a Receivership. (Right?)Creditors of Venezuela and PDVSA, its state oil company, have forced an execution sale of PDVSA's only US asset – which happens to be the ultimate parent company of CITGO. The federal judge overseeing the process has tried to keep things orderly, but the inter-creditor fighting is getting juicy. Some lower priority creditors have filed new lawsuits in an apparent attempt to jump the queue. Now the special master overseeing the execution sale process wants the court to enjoin these lawsuits. Which strikes as us a reach – almost as if the execution sale process is some kind of receivership. So we asked Nate Oman, who has written about the potential use of receiverships to solve sovereign debt problems, to help us figure out what is going on.Producer: Leanna Doty
Hamilton Bank v. Sri Lanka: What the $@#$ ?Accusations that Hamilton Bank is a giant fraudster stealing depositor funds, bizarro requests from Hamilton to the court that other creditors be constrained in using their contract rights against it, an amicus intervention in the case to say nothing at all . . . and on and on. This case gets more and more bizarre, which makes us suspect that whatever is going on under the surface is even weirder than the (already weird) stuff that is visible to outsiders like us. What no one is discussing, though, is the “unconditional rights” provision in the trust indenture document that arguably gives minority bondholders protection against any attempt to do a cram down.Producer: Leanna Doty
Zambia’s Restructuring: A Post-MortemZambia’s recently concluded restructuring seemed to drag on forever, debilitated by conflicts among the various creditor groups. Why did these different groups think the others were being unreasonable in their demands? And what can we learn from what happened? Our guest is one of the keenest observers in the sovereign debt world, who followed this restructuring at the ground level, Theo Maret. Producer: Leanna Doty
The Champerty ShowAh, Champerty. Perpetual runner-up, to the doctrine of consideration, in the Stupidest Legal Rule pageant. Why do directly (e.g., via the abuse of process claim) what you can do clumsily and indirectly (by limiting an injured party’s access to finance)? But what do we know? Actually, not much. We do know that Venezuela/PDVSA won a very interesting Champerty case in the Southern District of New York. And while we know very little about Champerty, we know enough to know we don’t like the doctrine very much, even if the outcome seems defensible.Producer: Leanna Doty
IMF Rescues Pakistan From the Brink of Default (Again)Pakistan looks to be in the process of finalizing yet another IMF program. Yet again, it has been rescued from the brink of default with a bailout justified by some heroic assumptions about how a state of sustainability will magically materialize. Why? Our guest, Zohra Ahmed, of Boston University Law School, has a theory: that these bailouts (that ultimately hurt Pakistan because true economic reform never happens) are the price of consent. Specifically, consent by Pakistan to cooperate with US military interests. We discuss with Zohra both her theory and the evidence for it.Producer: Leanna Doty
A Better Way to Freeze (and Seize?) Russian Assets? Ever since Russia invaded Ukraine in 2022, there has been talk of what international law doctrines might be utilized to induce Russia to back off. One of those doctrines that has been whispered about is now, thanks to a wonderful new article by our guest, international law guru and Yale Law professor, Oona Hathaway, is that of Countermeasures. Oona and her co authors not only explain the law of countermeasures, but argue that these legal principles naturally extend into a doctrine of “collective countermeasures”. We ask Oona about these doctrines and their scope, particularly in the context of Russia and Ukraine. She argues that the doctrine, properly understood and applied, is (and should be) narrow. To quote Spider Man (maybe), “With Great Power Comes Great Responsibility”.Producer: Leanna Doty
Cambodia’s Debts to the US: How “Dirty” Are They?Roughly a half century ago, in the 1970s, the US infamously bombed Cambodia. Less known is that the US, through a “Food for Peace” program, made a series of loans to the somewhat dodgy government of General Lon Nol. The loans were made, at least in part, to assist Cambodians displaced by the bombings. Fast forward a few decades, the US government periodically asks for the debts to be paid back, with interest. Cambodia responds: Seriously, you want to get repaid for lending money to an awful government (that you helped prop up after a coup) to pay for bombs that you dropped in violation of all sorts of laws? The real story is a bit more complex than the soundbite version. Our guest, Professor Randle DeFalco of Widener University Law School helps us begin to unpack the story of these debts.Producer: Leanna Doty
Ukraine's Preliminary Debt Restructuring DealUkraine reportedly has reached terms with a subset of its bondholders, agreeing to restructure the country's roughly $24 billion in bond debt. What to make of the deal? It seems (to our view) to be premised on the IMF's entirely unrealistic assumptions about Ukraine's future debt repayment capacity. The reports we have seen about deal terms also don't explain what will happen to some important parts of the debt stock – including that of state-owned energy company Ukrenergo. Joseph Cotterill of the Financial Times joins us to explain the basic parameters of the deal, the underlying assumptions, and whether another restructuring of private debt is in the cards. And while we have Joseph, we also ask some questions about recent developments in litigation arising out of Mozambique's "tuna bonds" debacle. Producer: Leanna Doty
Tortious Interference and Inter-Creditor DutiesCreditors 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 CrisisThe 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 ConfusionRumor 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 YorkDue 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 UkrenegroA 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 EpisodeIn 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 HatsThe 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 DebtObservers 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=4656147Producer: 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 RevisitedArgentina'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 DebtsWe’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 RestructuringsThere 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 SLBsWe’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
Are sustainability-linked bonds here to stay?Sustainability-linked bonds (SLBs) tie the issuer’s payment obligations to the satisfaction of some environmental benchmark. In principle, this could be good and provide an incentive for bond issuers to set ambitious climate-related goals. In reality, SLBs have proven a bit of a bummer. They set unambitious targets, include dodgy legal terms, and provide for only a trivial increase in payments if the issuer misses its target. Recently, ESG-focused investment also has prompted political backlash by conservative politicians. Are SLBs doomed to fail, or is there hope for them to play a meaningful role in funding a green transition? Kenza Bryan of the Financial Times has written extensively about SLBs and green finance in general and joins us to talk about the state of the market for SLBs, carbon credits, and green finance in general.Producer: Leanna Doty
Sovereign Sustainability Linked Bonds: What’s Going On?The newest product on the sovereign scene is the sustainability linked bond. The product is potentially exciting because, on its face, it seems to remedy some of the incentive problems embedded in the more commonly used “use of proceeds” green bonds. Chile and Uruguay have issued slbs with considerable fanfare. But these are two strong issuers with robust commitments to climate change. The question we are interested in is whether these instruments are providing issuers with incentives to do more for climate change than they would otherwise do. Our guest, Ignacio Lagos, of Cleary Gottlieb, is one of the young stars of the sovereign debt field and talks to us about these deals. And since we had Ignacio with us, we seized the opportunity to also try to understand a bit more about the intriguing Hamilton Bank v. Sri Lanka case and that Registered Holder/Beneficial Owner stuff.Producer: Leanna Doty
Venezuelan Debt: The CITGO Auction, Statute of Limitations, and Other Enforcement Matters
It’s a busy time for Venezuela’s creditors. The auction process is starting for the sale of Venezuela’s ownership interest in US-based refiner CITGO. The six year statute of limitations on bond claims is coming up, and both the Maduro government and the National Assembly are trying to head off a new wave of lawsuits by giving assurances that, if bondholders hold fire, the country won’t later raise the statute of limitations as a defense. Meanwhile, although a comprehensive debt restructuring would seem to be in everyone’s best interests, the ongoing US sanctions regime continues to make that impossible. Steven Bodzin of REDD Intelligence is one of the most incisive and knowledgeable observers of what’s going on in Venezuela. He joins us to help figure out the current state of play.
Producer: Leanna Doty
Chasing Payment on Old Cuban Debt
We have a great fondness on this podcast for unpaid historical debts and the attempts to litigate these. One such story is that of Cuban debts. Our guest is Rebecca Burton of Linklaters (London), who joins us to talk about the saga of CRF v. Banco Nacional de Cuba and the 2023 ruling out of the High Court in London. Among the key questions here was whether in fact CRF, a hedge fund that had consolidated a bunch of old Cuban debts, had in fact validly received authorization to be able to litigate against the Cuban state.
Producer: Leanna Doty
Unpacking the Argentine GDP Warrants Case
In 2005 and 2010, Argentina issued GDP-linked warrants as a sweetener to investors participating in its debt restructurings. At the time, the warrants didn’t seem so sweet. Holders assigned them little value, and most got rid of the warrants for pennies on the dollar. But in April, in a lawsuit brought by hedge funds that had bought the warrants on the cheap, an English judge ruled that Argentina had dramatically underpaid on the warrants, adding nearly 1.5 billion to the amount the country owes to foreign creditors. Our guests this episode are Tim Dodsworth, Maggie Hemsworth, and Severine Saintier, hosts of the fabulous Unpacking Contract Law podcast, who help us understand the intricacies of the case.
Producer: Leanna Doty
Is a Diaspora Bond a Loan or a Gift?
Contract law distinguishes contracts from promises to make a gift. Contracts are enforceable; gift promises are not. Theories supporting this distinction note that gift promises often are made in relational and non-market settings where reputational and other enforcement mechanisms work well, and where legal enforcement is less needed and might even be disruptive. Yet a literature in economic sociology shows a much blurrier boundary between gift and market transactions. One context in which this is so involves diaspora bonds issued by sovereign states. Dan Lainer-Vos (USC) joins us to talk about the contrasting experience of issuing diaspora bonds in Ireland and Israel, the subject of his terrific book, “Sinews of the Nation."
Producer: Leanna Doty
Hamilton Bank Redux
We have talked before about the lawsuit by Hamilton Bank against Sri Lanka, noting that Hamilton Bank is trying to avoid the effect of a restructuring. Once it gets a judgment, it will have a claim to be paid in full despite any subsequent modification of the bond. Sri Lanka seems to know this and has been raising plausible but weak legal arguments in an apparent attempt to delay the case. Now the government has outright asked the court to stay the lawsuit (though without explicitly saying what it is concerned about). We are skeptical the judge will grant an outright stay, but perhaps there is room for a little foot dragging...?
Producer: Leanna Doty
The New Not NormalFelix Salmon, the OG of sovereign debt journalism joins us for our final episode of the season. We talk to Felix about his forthcoming book, The Phoenix Economy: Work, Life, and Money in the New Not Normal. The past three years of pandemic life have changed things around the world. Felix asks what this new “not normal” is and how it might impact what is coming next. Our particular focus, of course, is on what Felix thinks is in store for us on the sovereign debt front. And there is a lot to talk about: inflation fears, rising interest rates and China, China, China.Producer: Leanna Doty
In a Bad StateThe world of sovereign debt research has long given short shrift to insights that might be gained from the study of sub sovereign debt. In this episode, we talk to David Schleicher of Yale Law about his new book "In a Bad State" about the federal government's responses to various local debt crises over the past two centuries. Turns out that there are lots of lessons to be learned from the fascinating world of US state and muni debt.Producer: Leanna Doty
Ukraine's Victory in the UK Supreme CourtMore than three years after hearing argument, the U.K. Supreme Court finally handed down a decision in Russia's $3 billion bond dispute with Ukraine. The dispute probably shouldn't be in a domestic court at all (functionally, it is a dispute over a bilateral loan between sovereign states). But that's where it is, and the U.K. Supreme Court ruled in favor of Ukraine's duress defense, which now can go to trial. Our guest, Nate Oman (William and Mary) is a guru of contract law (and many other things). Nate helps us think through Ukraine's duress argument, the U.K. Supreme Court's rulings about the borrowing capacity and authority of states and their officials, and how the law of restitution fits into all of this.Producer: Leanna Doty
Sri Lanka’s Litigation Risk: Yet Another Problem With the Slow Pace of RestructuringsA while back, Sri Lanka was sued by an investor, Hamilton Bank. Early on, the lawsuit just seemed strange. Hamilton Bank’s initial claim for violation of the pari passu clause was a clear loser. Sri Lanka then raised a bizarre defense—that only the bond’s registered holder could sue. The lawsuit now involves an ordinary claim for unpaid principal. What’s going on? It seems the fight is about whether Hamilton Bank gets to escape a debt restructuring. A bond contract’s restructuring mechanism can’t affect a creditor who holds a claim based on a court judgment. So if Hamilton Bank gets its judgment first, it can demand payment in full. The broader lesson for the official sector should be clear. All these delays in getting official sector participation sorted out give private creditors time to opt out of a debt restructuring. If the goal is equal treatment across creditor types, maybe hurry it up a bit? Producer: Leanna Doty
Pakistan's Debt DistressPakistan's debt distress has focused scrutiny on its debt structure, which includes lots of bilateral and official borrowing, much of it from China. The question of how to restructure Chinese lending, in relation to loan by other creditors, will be at the top of the restructuring agenda. Our guest, Reza Baqir, has both been on both sides of the table in debt workouts. He was head of the IMF’s Debt Policy division for a number of years, helping design key sovereign debt policies. He became governor of the State Bank of Pakistan in 2019 as the country faced a balance of payments crisis. He joins us to discuss lessons drawn from these experiences, how the IMF can improve, the role of China in modern debt markets, and how to improve the international debt architecture. Producer: Leanna Doty
Do Native American Tribes Pay Too Much to Borrow? Recent research suggests that Native American tribes pay significantly more to borrow than their municipal counterparts. We try to unpack some of the structural reasons why this might be so with the leading legal expert on the topic, Townsend Hyatt. Townsend, a partner at Orrick, indulges our very basic questions about the pricing penalty that the tribes seem to suffer - and what sorts of reforms might improve this situation.Producer: Leanna Doty
Why is the Zambian Restructuring Dragging on So?There are finally signs of progress in Sri Lanka’s restructuring, with the various bilaterals providing “financing assurances” (whatever they are). But Zambia’s restructuring has been mired in quicksand for far longer. Sovereign debt guru Melissa Butler, of White & Case, who is an expert in Sub-Saharan Africa, joins us to talk about the situation in Zambia and the broader state of sovereign debt restructuring dysfunction. We also ask Melissa about climate resilience clauses and get to talk about her career path as a US-trained lawyer working in London. Producer: Leanna Doty
The Long Shadow of Default The sovereign debt literature has somehow managed to overlook one of the biggest, most enduring debt defaults on record, involving one of the world’s richest democracies. We’re talking about the United Kingdom’s failure to pay its First World War debts owed to the United States. We talk with David Gill (University of Nottingham) about his wonderful new book, The Long Shadow of Default (Yale University Press), which focuses on the origins and consequences of this largely overlooked episode. We talk about the consequences of default for the U.K. in financial markets (basically none), the consequences for diplomatic relations between the U.K. and U.S. (much more significant), and on how this episode shapes national policies regarding sovereign debt to this day. Producer: Leanna Doty
ESG investing What combines existential dread (climate change) with bewildering What counts as ESG investing? At times, it seems like almost anything could fall under that label. And does ESG investing really have the potential to drive the transition to carbon-neutrality? As sovereign debt specialists, we know only a little bit about the ESG world, and much of what we know comes from reading the work of Natasha White of Bloomberg. Natasha joins us to talk about ESG investing, debt-for-nature swaps like that conducted by Belize, and the overall direction of these markets. Producer: Leanna Doty
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 InitiativeSovereign 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 ContractRecent 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 KingThe 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 BondWe 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
Please Sir, May I Read the Contract?
Sovereign bonds are sold after distribution of a sales document -- a prospectus or offering circular -- that describes key risk factors and that summarizes or reprints the terms and conditions of the bonds. The sales document isn't the contract, or at least not the whole thing, because it typically makes clear investors will be bound by terms found elsewhere, such as a fiscal agency agreement. But these other documents often aren't given to prospective investors. Even after buying, the investor may have to jump through hoops to get a peek at the fiscal agency agreement -- e.g., physically going to Luxembourg to read (but not copy) the document. And, if the investor doesn't like what they see, they have no right to return the bond. We've always been puzzled and a bit irritated at these practices but have assumed that investors are bound by the terms in the fiscal agency agreement. But... is that really so clear? If terms aren't disclosed in advance, and there is no right to return once the terms are disclosed, then it doesn't seem clear at all.
Producer: Leanna Doty
Pakistan’s Bizarro 2024 Bond
Pakistan is in crisis and its bonds are in the toilet. One of its bond series though, the 2024, is not like the others. It has one of the highest CAC vote thresholds we’ve seen anywhere in the modern era. But that’s not it; best we can tell, the process by which votes are counted appears to be some weird historical holdover. How? Why? What? In this episode, we try to suss out the implications of the weirdness in the bond. Our guess: This is going to be a nightmare to restructure.
Producer: Leanna Doty
Contracting for Home Field Advantage
Virtually all international sovereign bonds include provisions designed to make it easier for investors to sue the sovereign after default. Choice of forum clauses, waivers of sovereign immunity, provisions addressing service of process, etc. Russia is a prominent exception where these clauses are absent, and this is one of many factors making it hard for investors to decide how to respond to the country's default. John Coyle (UNC) is one of the foremost experts in how courts interpret choice of forum (and choice of law) clauses. He joins us to talk about investors' rights against Russia and about risks that badly drafted choice of forum clauses can pose for investors. For instance, if the sovereign asks its own courts to declare a loan invalid, can this decision bind investors?
Producer: Leanna Doty
Ukraine’s Dodgy Designations
In its recent debt reprofiling, Ukraine asserted that it had the unilateral right to “re-designate.” The context here is the operation of the aggregated collective action clause (CAC), which allows the debtor to conduct an aggregated vote across multiple series of bonds to see if a restructuring proposal gains the support of the entire group. Ukraine claimed that it had the contractual right, in its sole discretion, and after the votes were in, to decide which series of bonds to include in the restructuring. To be fair, its bond contracts did seem to allow this. More or less. But the contracts didn't explicitly confer this power, and it is a strange way to conduct a vote. Why allow an idea's proponent to count the votes before deciding which votes should count? In Ukraine's case, the reprofiling had wide creditor support, so perhaps it didn't matter all that much. But we wonder whether investors will come to regret allowing this assertion of a unilateral redesignation power to pass without objection. There will be other restructurings, where investors will be asked to make much bigger sacrifices, and where governments may just use the redesignation power as leverage. When that happens, we won't be surprised when the Ukraine example is trotted out as an informal precedent to justify this practice.
Producer: Leanna Doty
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.
Note to readers: We are now posting new episodes every other week, rather than weekly.
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.
Note to readers: We are now posting new episodes every other week, rather than weekly.
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
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
Initiatives to Improve Sovereign Debt Markets
Our guest is Deborah Zandstra of Clifford Chance, a key figure in the sovereign debt world who has been influential in initiatives to improve sovereign lending markets. She joins us to discuss the latest reforms to the Euro Collective Action Clauses and other initiatives, some positive and some (to put it politely) a bit misguided.
Producer: Leanna Doty
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
What's going on with Venezuela? And can we use it to talk about Blue Bonds?
Venezuela has been in and out of the news. A potential forced sale of CITGO. Random creditor attempts to attach Florida assets. And a recent piece in the Financial Times about widespread environmental destruction, which requires capital (ideally in connection with a debt restructuring) to reverse. Sounds like time for another Venezuela episode. But this time, maybe with some Belize mixed in, since Belize's recent restructuring made funds available for the environment and might (to optimists, anyway) be a template for other countries. We talk with Steven Bodzin, deputy editor and Andean region reporter, and Carla Dager, ESG global lead, for REDD Intelligence, a news and information firm focusing on distressed debt and restructuring. Steven and Carla share their deep knowledge of the two countries and help us figure out what to make of recent developments.
Producer: Leanna Doty
The Environmental Benefits of the Belize Restructuring
There has been a lot of hype about the Belize restructuring, especially the issuance of a so-called Blue Bond and the decision to devote some of the debt savings to marine conservation. Jill Dauchy is founder and CEO of the Potomac Group, which advised The Nature Conservancy on the deal. We ask Jill about the transaction and its key players--for instance, about the importance of political risk insurance by the Development Finance Corporation.
Producer: Leanna Doty
The History Behind Lawsuits Over Old Chinese and Russian Sovereign Debt
Lawsuits to enforce long-defaulted Chinese bonds (by an engineer in Alabama) and Russian bonds (by the wonderfully-named Carl Marks & Co.) have a storied place in sovereign debt lore. They sit at the intersection of history, politics, and economics, mixed with a bit of law a whole lot of international intrigue. We talk with historian/geographer Elya Zhang of the University of Rochester about the back story behind these courtroom dramas and the broader history of modern Chinese sovereign debt.
Producer: Leanna Doty
From Russia With ... Well, Frankly, A Bit of Concern
Getting paid on an expropriation claim is difficult in the best of circumstances, even when the sovereign wants to appear hospitable to foreign investors. Russia under Vladimir Putin is not so interested in seeming hospitable. This week, we discuss the famous Yukos litigation with Paul Stephan (Virginia), whose expertise spans international law, international finance, international tax, contracts, and other fields. We also talk about Paul’s forthcoming book on what the future holds for the international legal system.
Producer: Leanna Doty
From Commercial Bank Loans to Blue Bonds
Sovereign debt markets have evolved significantly over the years, from syndicated bank loans, to bonds, to the current infatuation with ESG lending. Antonia Stolper (Shearman & Sterling) joins us to talk about the evolution of sovereign debt practice over the course of her eminent career. We also talk about Belize's recent debt restructuring, where some say creditors agreed to significant additional reductions in exchange for promises by Belize to invest the savings in environmental conservation projects. Antonia helps us understand what actually happened in this deal and what its implications might be for future sovereign restructurings.
Producer: Leanna Doty
Does Haiti Have a Legal Right to Compensation from France?
Two earlier C&C episodes explored aspects of the Haitian Independence Debt of 1825, in which Haiti agreed to pay France an "indemnity" of 150 million francs to compensate French plantation owners who had been dispossessed by Haitians' successful fight for independence. In a new paper with Kim Oosterlinck and Ugo Panizza (link below), we explore this history, its relation to the law of odious debt, and we estimate the long-term economic consequences of the debt for Haiti. (Hint: very significant.) But might Haiti have a legal right to compensation from France? In this episode, we talk with Gunther Handl (Tulane) an expert in public international law who worked on this very question in the 2000s. Many might dismiss the prospect as fantasy, but Gunther explains why Haiti is on much stronger legal footing than many would suppose.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3894623
Producer: Leanna Doty
The Domestic Costs of Imposing Capital Controls - a Constraint on Sovereign Debtors?
Stephen Nelson's (Northwestern) research explores a variety of topics fundamental to sovereign debt markets, including the politics of IMF lending and the political dynamics of borrowing in developing and emerging market countries. We are huge fans of Steve and his work, which tackles important questions in unfailingly original ways. He joins us to talk about how domestic politics affects the imposition of capital controls and about the risk that IMF lending programs might lead to worse human rights outcomes.
Producer: Leanna Doty
What Exactly is the Duty of Good Faith?
Are the parties to sovereign debt contracts subject to a duty of good faith and fair dealing? If so, what does this mean? We have been struggling with these questions lately, especially in the context of debt restructurings that employ arguably coercive tactics (hello, Province of Buenos Aires!). The duty also may play a role in regulating the behavior of intransigent creditors. But even ignoring sovereign debt contracts, we have some fundamental questions about the duty of good faith as it applies to "ordinary" contracts. The duty can prevent parties from taking advantage of what seem to be the express terms of the contract. When does this happen, and what justifies it? Our guests are Tess Wilkinson-Ryan and David Hoffman, both brilliant contracts scholars, both of Penn Law, and both hosts of the superb Promises Promises podcast (link below). No real talk of sovereign debt contracts in this episode. Tess and Dave help us think through the role played by the duty of good faith in contract law generally.
https://podcasts.apple.com/us/podcast/promises-promises/id1527875721
Producer: Leanna Doty
The Province of Buenos Aires' Restructuring
The recent restructuring of the Province of Buenos Aires' multi-billion dollar debt raises many questions. Why the hardball tactics? Why did creditors cave suddenly when initially seeming to stand tough? Who were the holdouts and will they be paid in full? Will PBA's coercive tactics harm its reputation as a borrower? And who better to ask these questions than Scott Squires of Bloomberg, one of the only financial reporters to have dug deep into the legal, political, and economic details of both the Argentine republic’s restructuring and the subsequent provincial ones.
Producer: Leanna Doty
Restricting Trading in Venezuela’s Sovereign Bonds: Has it Worked?
The Biden administration has continued the Trump administration’s strategy of restricting trading in Venezuelan sovereign bonds as a way of bringing to heel Venezuela’s Nicholas Maduro. Has that (innovative?) strategy shown any signs of working? Thomas Laryea (Orrick, Herrington & Sutcliffe) is one of the most respected voices in the policy space on sovereign debt, with extensive experience in both the public and private sector, joins us to answer this and other questions. We ask Thomas both about what is going to happen with Venezuela’s eventual debt restructuring given the policies that have been in place for the last five years and about his evaluation of the two new mechanisms that the Official Sector put in place to deal with the debt fallout from Covid, DSSI and the Common Framework.
Producer: Leanna Doty
What Do We Know About International Investment?
What allows countries to borrow and to attract investment? Often the answer emphasizes the ability to make credible commitments, and this is often supposed to be easier for countries with democratic institutions. For some countries—often supposed to be those with weaker domestic institutions—agreeing to submit disputes to international investment arbitration is thought to be a way to make promises credible. Many in the civil society arena absolutely hate investment arbitration, thinking it is unfair to borrower countries. The rejoinder, of course, is that it is necessary to enable investment. As it turns out, we actually know relatively little about the factors that enable governments to make credible promises. Rachel Wellhausen (Texas) is one of the foremost experts in the political economy of international investment and finance. Her work spans the investment arbitration system, the relevance of the so-called “democratic advantage,” and other fundamental questions. She joins us to talk about the ability of governments to attract investment.
Producer: Leanna Doty
Financial Contract Design
Lachlan Burn and Jeff Golden, formerly of Linklaters and Allen & Overy, are two of the most respected lawyers in the capital markets world. Together and separately, they have been at the forefront of almost every effort over the past forty years to improve contract documentation and increase certainty in legal determination in financial transactions. In this episode, they talk with Mitu--Mark is away this week--about how contract production methods vary across jurisdictions (NY v. London, Common v. Civil Law, etc.) and the importance of institutional culture in organizations (e.g., ISDA, the FMLC) in which they have played key roles.
Producer: Leanna Doty
Local v. Foreign Bonds?
One of the classic questions in sovereign debt is why and when do sovereigns choose to issue bonds under local parameters (e.g., currency and law) versus foreign ones. And the typical answer has been: It is all about the cost of capital, dummy! In a wonderful recent article, sovereign debt guru Layna Mosely and co authors give us a fresh and original perspective on this classic question by showing the key role that the borrower government’s political philosophy also plays. In this episode, we ask Layna about her new article and also about some broader and bigger questions about the field and the different roles that political scientists, lawyers, and economists play.
Producer: Leanna Doty
The Greek Restructuring of 2012 – Filling in the Gaps
Greece’s restructuring of March 2012 was one of the biggest, deepest, and fastest in sovereign debt history. Much has been written about it already, but there are still significant gaps in our understanding of how matters played out on the ground. For example, how and why did the restructurers decide to move from a 75% vote requirement in each bond (the standard at the time) to a class voting mechanism (a bankruptcy model)? Were they not worried about legal risk? And what about the reversal of the threat to not pay a single cent to any holdouts? Sovereign debt guru Andrew Shutter, one of the architects of the 2012 Greek restructuring, joins us to talk about these and other questions.
Producer: Leanna Doty
(Why) Are ESG Sovereign Bonds (Such) Scams?
Environmental, social, and governance (ESG) investing is white hot. Investors are clamoring for "green" bonds, "blue" bonds, and other instruments that supposedly fund investments in socially beneficial activity. And borrowers are happy to meet the demand. Maybe too happy. Do sovereign issuers of green bonds and other ESG instruments actually promise to do anything at all with the proceeds? Would such promises be enforceable even if they were made? Color us skeptical. No guest this episode. We discuss the legal terms in sovereign green bonds... or rather, the lack of legal terms.
Producer: Leanna Doty
Does a Good ESG Score Lower Sovereign Borrowing Costs, or Does Cheaper Credit Leave More Room to Do ESG?
Lupin Rahman, senior economist at PIMCO, is one of the gurus of the sovereign debt market. She is one of the very few who can talk with deep knowledge about the details of the fine print in sovereign debt contracts, the macro context of debt markets, and the importance of various Official Sector initiatives. We ask her about all of those matters, starting with the new popularity of ESG investing, the benefits and costs of these green and social strategies for sovereigns and investors (a topic on which Lupin and her co authors have a fascinating new paper, https://jfi.pm-research.com/content/early/2021/05/01/jfi.2021.1.112.abstract ) and ending up with QE and inflation fears.
Producer: Leanna Doty
What Does it Mean to Say the Treasury Market is Risk Free?
The U.S. Treasury market is supposed to be boring and risk free. As a result, it is largely ignored in the literature on sovereign debt, other than being used as a measure of the risk free rate in empirical studies. Our guest on this episode, Yesha Yadav (Vanderbilt Law), disagrees. While it is true that the U.S. government is relatively unlikely to default in payment (although that hasn't stopped it from doing so on a couple of famous occasions in the past), Yesha explains that there in fact are a host of risks lurking beneath the calm surface of the U.S. Treasury market. Yesha is one of the foremost experts in financial and securities regulation and has written extensively about risks stemming from lightly-regulated high frequency trading and other sources. She joins us to talk about why it's a mistake to think of treasury markets as risk free, the pitfalls of debt buybacks, and other topics.
Producer: Leanna Doty
The Sovereign Debt Acronym Show
DSA, SDR, DSSI. Sovereign debt insiders love to throw acronyms around in conversation to make us outsiders feel like, well . . . outsiders. Even the non-acronyms aren't exactly self-explanatory. Who knew the Paris Club isn't really a night club where sovereign debt folks hang out at after work? Aitor Erce, superstar sovereign debt scholar and veteran of multiple key institutions in the international financial apparatus (Bank of Spain, ESM) joins us to discuss the history and contemporary relevance of these institutions and to offer some critiques of how they function. We also talk about proposals to increase IMF allocations of SDRs in response to the covid crisis. And while we have Aitor, we ask how all of these acronyms – SDRs, DSAs, etc. -- play into the G20's Common Framework. All in all, lots to talk about. We will need to have Aitor back.
Did External Finance Produce Weaker States?
In the first era of bond finance (roughly 1820-1920), countries often pledged customs revenues and other collateral to back their external debt. Conventional wisdom is divided as to whether these pledges were worth anything. After all, investors couldn't seize the ports on their own, and rich countries were only sometimes willing to do it for them. Didac Queralt (Yale) has done fascinating work on the relationship between external finance and the development of state institutions. Among his surprising findings are that investors did assign value to collateral, suggesting that these pledges were more enforceable than is often assumed. But he also highlights the long-term costs. Access to external capital may have allowed states to defer the development of robust tax systems. In short, ability to tap external finance may have produced weaker and less democratic states. We talk with Didac about his research.
Producer: Leanna Doty
How do Investors in Sovereign Bonds Fare?
Josefin Meyer (Kiel Institute for the World Economy) is one of the young stars of the sovereign debt world. Her recent paper with Carmen Reinhart and Christoph Trebesch looks at how investors in sovereign debt fared from Waterloo to the present day (up to 2016, anyway). The paper is astonishing in scope and finds that the returns to investors in sovereign debt--notwithstanding the many (often serial) defaults and restructurings--are significantly greater than what would be predicted by standard finance models. What is driving these excess returns? Should we all be rushing out to buy Lebanese and Argentine bonds? We ask Josefin these and other questions, including what to think of current Covid-era sovereign bond yields (e.g., negative yields at present for Greece).
Producer: Leanna Doty
Veil Piercing and State-Owned Entities
Disappointed creditors can attach a sovereign's assets when used for commercial activity in a foreign state. But much commercial activity is conducted not by the sovereign itself but by state-owned or controlled firms. In principle, this keeps assets away from creditors. But creditors have had recent success arguing they should be able to reach SOE-owned assets on the theory that the firm is the state's alter ego. Mark's recent article (linked below) tries to make sense of this somewhat incoherent area of law. Our dear friend, the incomparable Anna Gelpern, joins us to talk about veil piercing in sovereign debt cases, and about what lies ahead in sovereign debt markets.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3801204
Producer: Leanna Doty
Covid is Just Like the _______ Crisis
In the current economic context, with many worried about the risk of widespread financial distress among emerging market sovereigns, scholars and policymakers often turn to the lessons of the Latin American debt crisis of the 1980s. But is that the right precedent? Do other historical episodes, such as the Great Depression, offer more insight? Maybe the current moment is unique? Economic historian Juan Flores Zendejas is an expert on financial crisis and sovereign debt and one of the most insightful thinkers about the uses of history in understanding financial markets and international economic relations. He joins us to discuss the economic consequences of the pandemic.
Producer: Leanna Doty
Can Courts Help Right Historical Wrongs?
In the early 1900s, the first genocide of the 20th century occurred in what was then the colony of German Southwest Africa (now Namibia). Perpetrated by the German government, decades of widespread seizure of property and imposition of forced labor were followed by the mass killing of tens of thousands of the Ovaherero and Nama peoples. In recent years, there has been talk of reparations, but these talks have not resulted in payment. So descendants of the genocide victims filed a lawsuit in federal court in New York, which ultimately failed. Matthias Goldmann has written insightfully about that lawsuit—and about many, many other things as well. He joins us to discuss, in the first half of the episode, Germany’s colonial past in Africa and efforts to use the courts to redress historical wrongs. In the second half, we get to ask Matthias about modern sovereign debt problems, especially Mozambique’s challenge to the enforceability of loans associated with the tuna bond scandal.
Producer: Leanna Doty
How China Lends
Anna Gelpern and Christoph Trebesch--along with co-authors Sebastian Horn, Scott Morris, and Brad Parks--have produced a truly unprecedented study of a long-secret topic: the legal terms of the contracts governing loans by Chinese state-owned entities to borrower governments around the world. How China Lends (link below) documents a variety of innovative and unexpected contracting practices that straddle the border between "official" and "private" lending (and maybe reveal the uselessness of trying to maintain that distinction?). Anna and Christoph join us to talk about their findings, which not only shed light on the practices of Chinese lenders but offer a new model for the study of contracts generally.
The paper is available here: https://www.aiddata.org/publications/how-china-lends
Producer: Leanna Doty
Why Is No One Worried About the Gargantuan Euro Area Sovereign Debt?
Our guest is the brilliant French economist, Anne-Laure Delatte, who is worried about the ever increasing size of European sovereign debt and the return (did it ever go away?) of the bank-sovereign doom loop. We ask Anne-Laure about the increasingly important role the ECB seems to be playing in determining European policy (again, she is worried) and whether there is a general assumption that the ECB will now and forever more serve as a backstop to the unlimited borrowing of individual Euro area nations. Finally, to get her even more worried, we ask Anne-Laure about the implications of Marine Le Pen taking the reins of power in France (we vividly remember her plan to solve the French debt problem by unilaterally converting the Euro denominated debt into Francs).
Producer: Leanna Doty
Bendy Bonds Are Better (Say it Five Times Fast)
Our guest this week is Ben Heller, one of the most insightful observers of the sovereign debt markets, and someone we often turn to for a sense of the investor’s perspective on the markets. Recently, Ben and a colleague published a proposal for so-called Bendy Bonds – state-contingent debt instruments that automatically give countries a short breathing spell in times of crisis. State-contingent debt is a favorite of many economists, but proposals for new instruments—like GDP-linked bonds—have generally gone nowhere. But there has been a great deal of interest in Bendy Bonds. We talk with Ben about the idea behind Bendy Bonds and about recent events in the markets such as the claim by some that the Pac Man and Redesignation strategies proposed by Argentina in its recent restructuring were innocent attempts to correct for flaws in the latest version of the ICMA CACs. Ben, who was on the key drafting committees for the ICMA CACs, gives us some rare and invaluable legislative history.
https://www.hbk.com/uploads/documents/Bendy-Bonds.pdf
Producer: Leanna Doty
Recent Sovereign Debt Drama. Plus: Zambia’s Weird Bond Contracts
Are EU member states jointly and severally liable for EU bond debt? (No, of course not. Well, kind of…) Other than being fun at parties, what makes a “social” bond social? And has the G-20’s Common Framework removed the need to worry about a wave of defaults and restructurings in the wake of the pandemic? Our guest this week is the eminent Lee Buchheit, who kindly fields these and other off-the-wall questions from us in the first half of the show. In the second half, we talk about Zambia and what a debt restructuring in that country might look like. Actually, we talk about weird clauses in the Zambian eurobonds that might be relevant in a restructuring. Can it really be the case that Zambia can unilaterally modify its way out of debt?
Producer: Leanna Doty
Green Bonds for Everyone!
Matt Wirz (Wall Street Journal) helped uncover the Hunger Bond scandal in the Venezuelan debt. Conversations with Matt about why investors are willing to buy debt issued by odious regimes led to conversations about ESG, green bonds, sin stocks, and the new popularity of "green" sovereign debt. Recent sovereign debt related proposals include conducting debt for climate swaps to help countries deal with their gargantuan Covid debts. We talk with Matt about the so-called "greenium" (do investors really pay for green bonds?) and about whether all this ESG talk should be taken seriously. Call us skeptical. That said, there is a lot of talk. And where there is talk . . .
Producer: Leanna Doty
Central Banks, Executive Power, and Protecting Sovereign Assets
Central banks are a bit of a problem for the law of foreign sovereign immunity. From one perspective, they look like commercial actors, and sovereign immunity generally doesn’t protect commercial acts. So it would seem that a sovereign’s creditors should be able to attach central bank assets. Many have tried. But from another perspective, central banking is a quintessential government function, which the law of sovereign immunity should protect. Ingrid Wuerth (Vanderbilt) is an expert in the law of foreign sovereign immunity, and in international law in general, and joins us to talk about the protections afforded to central banks. Bonus discussion of the President’s power to unilaterally block creditors from going after a foreign sovereign’s U.S.-based assets.
The paper mentioned in this episode can be found here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3125048
Producer: Leanna Doty
Value Recovery Instruments: A Contrarian View
We often turn to veteran sovereign debt lawyer Mark Stumpf to help us understand the intricacies and history of the sovereign debt markets. He joins us to discuss a recent IMF report on the use of contingent debt instruments. In particular, we discuss Value Recovery Instruments, such as separately-traded GDP warrants. One view of these instruments, which appears in the IMF report and elsewhere, is that they should be standardized and easily tradable. Mark thinks this view is misguided—that VRIs should be nontransferable and bespoke. He joins us to explain why. We also get to take advantage of Mark’s encyclopedic knowledge of sovereign debt history to discuss the Louisiana Purchase, gunboat diplomacy, and other topics.
Producer: Leanna Doty
Post-Colonial Odious Debt
Talk of odious debt generally asks whether the populace must repay money borrowed by a corrupt former dictator. The assumption is that the people have overthrown a domestic despot. But what about money borrowed while under colonial rule? Discussions of odious debt generally overlook this scenario. In fact, it’s generally assumed that a newly-independent state cannot disavow these debts. Likewise, the new state commits expropriation and must pay compensation if it takes back property appropriated by a colonial oppressor. Our guest is the brilliant Gregoire Mallard (the Graduate Institute), whose work inspired us to wonder why discussions of odious debt tend to overlook post-colonial obligations.
Gregoire’s recent book on this and related matters, Gift Exchange: The Transnational History of a Political Idea is available at https://www.cambridge.org/core/books/gift-exchange/DF1BB308065A9D2974095A6FC6242549
Producer: Leanna Doty
The Back Story of Iraq’s Debt Restructuring
Iraq after Saddam Hussein had massive, patently unpayable debts. Creditors viewed Iraqi oil exports as a valuable potential source of recovery and were chomping at the bit to get paid. Yet in the end, there were few successful creditor lawsuits and the haircuts imposed in the restructuring were among the most brutal in sovereign debt history. How did this happen? Our guest is economic historian Simon Hinrichsen, who draws on his wonderful recent research to answer our questions.
Producer: Leanna Doty
What Does the U.S. Owe Haiti for La Navasse?
Sovereign debt and guano go together like ... they go together well, okay? Bird poop was once so valuable as fertilizer that Peru used it as collateral for sovereign debt. It was so valuable that, in the 19th century, the United States and other countries simply claimed sovereignty over islands with guano deposits. The only real limit was that the island couldn't belong to another recognized sovereign nation. That the island was inhabited, perhaps by people who viewed themselves as part of a sovereign nation, was unimportant. La Navasse is one such island, situated roughly 35 miles off the coast of Haiti, and a source of contention between the U.S. and Haiti to this day. Our guests are the wonderful Miami Herald reporter, Jacqueline Charles, who has written about La Navasse for the Miami Herald, and our friend and brilliant colleague, Guy-Uriel Charles.
Producer: Leanna Doty
Zambia's Default and Restructuring Prospects
Zambia was the first African country to default on its debt in the wake of COVID-19. It has significant debt to Chinese lenders as well as bond debt held by private investors. The latter may have a big enough stake to veto a restructuring and are in no mood to make concessions, ostensibly because they worry that Chinese lenders may get favorable treatment. Tommy Stubbington, one of the terrific emerging markets reporters at the Financial Times, helps us make sense of the Zambian debt.
Producer: Leanna Doty
What Motivates China's Overseas Lending?
Including lending by state owned enterprises, China appears to be the world’s biggest official creditor. Critics emphasize its lack of loan transparency. Some accuse China of using loans as tools to gain political or even territorial control. Are such criticisms fair? And what really motivates China's overseas lending. Pippa Morgan (Duke Kunshan)is a specialist in the political economy of China's foreign economic relations and joins us to talk about these questions.
Producer: Leanna Doty
Do Investors Care About Odious Debts?
The Tsarist Russian government used borrowed funds to repress domestic political movements. Vichy France borrowed while collaborating with the Nazis. King Leopold used borrowed funds to engage in horrific exploitation and repression in the Congo Free State, and these debts were later assumed by Belgium. There are nearly endless examples of truly odious sovereign debts. Do investors care about any of this? And if so, why? Our guest Kim Oosterlinck (Universite Libre de Bruxelles; Solvay Brussels School of Econ. & Mgmt.) is perhaps the foremost expert on such questions. We talk with Kim about odious debt, with a sidebar on efforts to recover looted art.
Producer: Leanna Doty
Haiti’s Odious "Independence Debt"
In 1825, France imposed on Haiti an indemnity obligation of 150 million francs, ostensibly to compensate French plantation owners for Haitians having fought for and won their freedom in the revolution two decades prior. Haiti assumed this vast debt with French gunboats lurking just offshore, and all parties understood that it could not be repaid without massive borrowing from French (and later U.S.) banks. It would be well into the 20th century before Haiti retired these debts. The Haitian independence debt was odious and unjust. But was it illegal at the time? And if so, does Haiti have an avenue to recover from France? We discuss these questions, and legal history more generally, with legal historian Julia Rudolph of North Carolina State University.
Producer: Leanna Doty
Covid (and Other) Contingencies
We close out 2020 with all-star guests Lee Buchheit, Joyce Chang, and Jeromin Zettelmeyer to discuss contingent debt instruments. Many economists extol the virtues of GDP-linked bonds, but investors are wary. Is caution appropriate? And what about the biggest modern contingency: the risk that COVID-19 will cause more economic harm than expected? Even in normal times, governments often receive less debt relief than they need, leading to multiple rounds of restructuring. We talk about the "COVID codicil" as a potential solution to this problem. Should investors fear or welcome it?
Producer: Leanna Doty
Restructuring Uncle Sam's Debt
All together now (in a smarmy drawl): "Families must balance their budget, why not countries?" Okay, that's a stupid thing to say (although politicians love to say it). It's especially stupid to say about rich countries that borrow in their own currency. But this doesn't mean these countries can't or won't default, as the United States itself has demonstrated. We talk with Julia Mahoney and Ed Kitch (Virginia), whose recent article (link below) covers the history of U.S. debt default and argues provocatively that a debt restructuring might be needed, perhaps surprisingly soon. And no, the 14th Amendment doesn't prohibit this. Julia and Ed explain why.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3492085
Producer: Leanna Doty
Best Crisis Management in HISTORY!
Felix Salmon (Axios; Slate Money) knows more about financial markets than pretty much anyone we know. He joins us to talk about the U.S. government's engagement (or lack thereof) with debt issues in emerging markets and with multilateral institutions like the IMF. Will things be different under a Biden administration? Also: what just happened with that lawsuit against Guatemala?
Trees. Wrong. Barking Up.
Jeromin Zettelmeyer has done foundational research on the economics and the law of sovereign debt. We discuss the G-20's "Common Framework," recently released to lay out a mechanism for coordinating debt relief to poor nations. Jeromin explains why Mitu and Mark are critical of the wrong aspects of the Common Framework and highlights the significance of the G-20's announcement.
Producer: Leanna Doty
A View From the Sell Side
Our guest Siobhan Morden is one of the most respected and widely-read sell-side analysts in the sovereign debt markets. We ask Siobhan about the process of assessing country risk and for insight about what to expect given the continuing economic fallout of the pandemic.
Producer: Leanna Doty
Why Not Use GDP-Linked Bonds?
Yannis Manuelides heads Allen & Overy’s Sovereigns and International Institutions practice group and has played a key role in shaping the legal terms of sovereign loan contracts, including the template for GDP-linked bonds. We talk with Yannis about why governments have been reluctant to use GDP-linked bonds and about different drafting practices in London and New York. We also chat (skeptically) about the so-called “common framework” to deal with the Covid-induced crisis in the sovereign debt world.
Producer: Leanna Doty
Judgments 1, CACs 0
If a bondholder sues and gets a judgment before a sovereign can restructure its debt, does the bondholder escape the restructuring? If so, will countries like Venezuela--which can't restructure any time soon and is increasingly a target of litigation in U.S. courts--be left without restructuring tools? Federal courts guru Andy Hessick (UNC Law) patiently explains why a restructuring vote under a collective action clause has no effect on a judgment. But governments needn't worry. There are plenty of other tools at their disposal.
Producer: Leanna Doty
Will Asking For Covid Assistance Cause a Ratings Downgrade?
Earlier this year, the Official Sector put in place a debt relief program for the poorest nations so that they would be able to utilize their scarce resources to ameliorate the havoc being caused by the pandemic. Some countries, however, have been concerned that asking for assistance will cause a ratings downgrade. But would it? What if the country needs this assistance to put it on a better path to economic recovery? What factors go into a ratings determination? Do contract terms make a difference? On this episode, we ask our good friend, ratings guru Elena Duggar, to help us understand the answers to these questions.
Producer: Leanna Doty
Pricing Those Pesky CACs
Do the legal provisions in a bond affect its price? If law matters then, at least in an efficient market, one would think the answer would be yes. Weirdly, lawyers often scoff at this idea, even though they are implicitly suggesting their work does not matter. But the empirical question remains. There has been extensive research on the pricing impact of Collective Action Clauses (CACs), with conflicting findings. We talk to financial economists Elena Carletti, Paolo Colla, and Steven Ongena about their recent studies of CAC pricing with one of us. Link to recent paper below.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2817041
Producer: Leanna Doty
What Lies Ahead?
Italy can borrow for free in the middle of a pandemic and one of the worst economic crises on record. What’s going on? Have massive infusions of central bank cash put us in a permanent state of easy money? Or are investors a bit too over-confident? We talk to Robin Wigglesworth, global finance guru and correspondent for the Financial Times, about what lies ahead in sovereign debt markets and about index funds and other key players who will shape the market in the coming years.
Producer: Leanna Doty
What's Your Damage?
When a sovereign defaults on its debt, what should investors recover in damages? It seems to us that the conventional answer to this question is just wrong. We think. Pretty sure, actually. Well, probably. Two contracts professors who study sovereign debt discuss how they don't understand contracts damages. In sovereign debt cases.
Producer: Leanna Doty
What if we hit Another Sudden Stop?
The sovereign debt markets hit a sudden stop in March 2020, where new funding to emerging market sovereigns ceased and, instead, capital rushed out. There was a very real risk of multiple sovereign defaults. Thanks to the steps taken by institutions like the US Fed and the ECB to flood the markets with money, funding for many emerging market sovereigns has resumed. But real economic activity continues to slow and the prospect of another sudden stop is real. To discuss what might be done to mitigate the cost if this were to happen, our guests are financial and international economics gurus Patrick Bolton and Ugo Panizza, of Columbia University (NY) and the Graduate Institute (Geneva) respectively.
Producer: Leanna Doty
This Episode Will Become Void in 3...2...1
Prescription clauses say bondholder claims are "void" or "prescribed" unless presented for payment within some period of time. Six months ago, we barely knew these clauses existed. Now, dueling contenders to represent the Venezuelan government are publicly arguing about what the clauses mean. We talk about Venezuela's very unusual prescription clauses. What do they mean? Actually, do the clauses even exist? No guest this episode.
The report mentioned in this episode can be found here: https://tinyurl.com/y5z2kbzu
Producer: Leanna Doty
State Guarantees That Bite One in the Backside
Our guest is legendary financial reporter, Joseph Cotterill, who famously chronicled the Pari Passu Saga for FT Alphaville in a previous incarnation. Joseph is now the Africa correspondent for the FT and we ask him about the corruption infused Tuna Bonds of Mozambique and South Africa’s tottering utility giant Eskom. In both situations, the largely unexamined problem of off balance sheet state borrowing via guarantees seems to have played a key role in the creation of the debt problems these countries face.
Producer: Leanna Doty
Contracting for Disaster(s)
Borrowers must pay. Period. Even a natural disaster probably won't excuse non-payment. And while loan contracts can provide a wider range of excuses, they almost never do. Contract innovation is rare in sovereign debt markets. Except, sometimes, it happens. Jim Ho is part of the team that designed the Natural Disaster Clause for Barbados. We talk with Jim about this innovation, its origins in Grenada's hurricane clause, and about whether the clause could be expanded to cover pandemics and other disasters.
Producer: Leanna Doty
The Sovereign Debt Seating Chart Needs Bigger Chairs
Big investors have been the dominant force on the investor side in recent restructurings. Rather than litigious hedge funds, big “real money” investors seem to be in charge. Has there been a fundamental shift in restructuring dynamics in sovereign debt cases? We talk with Anna Szymanski (Reuters Breakingviews) about this shift and what it might portend for the next wave of sovereign restructurings. Also: Is there any hope for Lebanon? We tap into Anna’s deep expertise about the serious crisis in that country.
Producer: Leanna Doty
Would you rather date Ecuador or Argentina?
Neither can pay their debts. But one brings your parents flowers while the other gets drunk at your Mom’s party and rides a Harley. That’s our understanding, anyway, of why investors are so sweet on Ecuador and so mad at Argentina after both countries conducted similar debt restructurings. We talk with Colby Smith, the extraordinary financial markets reporter at the Financial Times, about whether we might be missing some important aspects of this story.
Producer: Leanna Doty
How Did We Get the Crappy CAC?
Argentina made a lot of investors mad by proposing (threatening?) to pursue a divide-and-conquer strategy in its ongoing debt restructuring. The proposal added new jargon to the already-bewildering sovereign debt lexicon. Redesignation! Pac-Man! But what did Argentina really do? It all comes down to the collective action clause, or CAC. We talk with the brilliant Anna Gelpern about these clauses, about whether Argentina or its creditors were being ill-behaved, and about how Argentina could have avoided all this drama if it had just used a slightly different CAC, one that is already in widespread use. Basically, Argentina got the crappy CAC.
Producer: Leanna Doty
Why all the Sturm and Drang Over Force Majuere?
Recently, thanks to COVID-19, there has been much talk about the otherwise generally obscure civil law concept of force majeure. Our dear friend, the incomparable Eric Posner, tells us how this concept tends to play out in the US context and why every major law firm in the country seems to be writing client memos on it. Of greatest interest to us is the question of whether sovereign debtors can invoke the international law version (at least a close cousin) of it – the doctrine of economic necessity – to obtain temporary relief from their debt obligations today so as to divert resources to fight the pandemic. Eric kindly engages in a discussion of the complexities that would be involved.
Producer: Leanna Doty
Where Did All the Secured Loans Go?
Once upon a time, many governments could borrow in foreign markets only if they pledged assets to back the loan. Today, sovereigns almost never do this, although it happens in other debt markets. In Episode Four, we talk with Noel Maurer (George Washington University) about property rights and revenue pledges. Sovereigns used to promise creditors priority to customs duties, specific taxes, etc. Creditors (or their home governments) even appointed agents to manage the borrower’s revenue institutions. For the most part, these pledges have disappeared from modern sovereign lending—a transition documented in Noel’s terrific book, The Empire Trap. We talk with Noel about why this might be. Also, Donald Trump’s willingness to buy and sell sovereign territory. (Remember the Greenland drama?) We ask whether Donald Trump would pledge parts of the U.S. if he thought it would lower borrowing costs.
Producer: Leanna Doty
Gold Clause Mumbo Jumbo
We love to talk about the Gold Clause Cases from the 1930s and wonder why our colleagues are less enthusiastic. In this episode, we talk with constitutional law expert Gerard Magliocca (Indiana) about the cases, which are the subject of Gerard’s wonderful article, The Gold Clause Cases and Constitutional Necessity. The basic plot is that, in the 1930s, the U.S. needed to devalue the currency but feared that this would bankrupt private borrowers and magnify the government’s own debt burden. The reason? Loan contracts called for repayment in gold dollars indexed to their pre-devaluation value. So the government abrogated these clauses, and the Supreme Court looked the other way. We talk with Gerard about the Court’s motivations, how it dodged a constitutional crisis, the baffling (to us, anyway) reasoning underlying the Perry decision, and the potential relevance of the case to today’s covid-19 crisis.
Producer: Leanna Doty
Imperial Chinese Bonds: Are They Coming Back to Life in 2020?
Bloomberg’s Tracy Alloway, financial reporter extraordinaire, and sovereign debt guru Lee Buchheit join us for a discussion of zombie sovereign bonds. Over the last year, there have been stories in Bloomberg, the Financial Times and on NPR on the possible resuscitation of claims against China for non-payment of bonds that were issued over a century ago by the Imperial Government. The driving force for these stories has been the efforts of a group of supporters of President Trump who apparently hold a big bunch of these antique bonds and want President Trump to negotiate a settlement for them as part of his trade talks with China.
Producer: Leanna Doty
Venezuela’s Oil Company is Up For Grabs – and the Absence of Ten Words in its Governing Law Clause May Decide Who Gets it
The governing law clause is perhaps the most basic provision in every contract. Yet, it is so routine that few pay attention to it. Failure to pay attention to its precise wording though can bite one in the backside as the ongoing litigation between investors in Venezuelan bonds and the government-in-exile of that country demonstrates. Mark and Mitu discuss the Venezuelan governing law clause drama, as well as a number of other similar situations that have cropped up in recent years, including with Ukraine, Puerto Rico, and Mozambique.
Producer: Leanna Doty