In a series of papers over the past decade, the three of us have studied extensively the persistence of obsolete terms in sovereign debt contracting. (e.g., here, here and here). Our interest was motivated by a puzzling observation: Transactional lawyers did not appear to reform their contract clauses promptly in response to changes in the external environment. In a market with multi-billion dollar transactions, and with some of the most elite law firms in the world, the slow pace of innovation was surprising. It was especially surprising given the conventional view that good transactional lawyers keep abreast of … Read more
Bloomberg’s multi-talented Matt Levine recently wrote:
One of my favorite recent stories in bond documents is the one about how private equity firms changed a sentence in bond documents, which usually says that companies can’t make restricted payments if “a Default or Event of Default shall have occurred,” to instead say that they can’t make the payments if “an Event of Default shall have occurred.” (here)
As Robert Smith of the Financial Times (quoted in Levine’s piece) explains:
To a layman, [the foregoing likely] sounds the same. But there is an incredibly important distinction.
If you miss an … Read more
Over the past half dozen years, the three of us have written a number of papers on sovereign bond contracts. In the first set of papers, we documented the stickiness phenomenon (the reluctance of lawyers to modify standard contract language even though obsolescence posed a significant risk of misinterpretation). In the second set of papers, we studied the phenomenon of random mutations to the standard form language that occurred without an apparent rational purpose (here, here, and here). Both findings seemed completely at odds with the standard account of how sophisticated lawyers drafted multi-billion dollar financial … Read more
The emergence of “activist” investors across a range of markets has been one of the most interesting phenomena of the past few decades (see here, here and here). These investment funds seek to capture rents from their investments by “actively” enforcing their rights. Activist investors pursue this strategy in markets in which the majority of investors are passive. Much of the discussion of this development in both the financial press and the academic literature has focused on activists acquiring equity positions in order to influence a firm’s management policies (see here and here). Our focus, however, is … Read more
On October 25, 2016, the Argentine province of Santa Fe issued $250 million in international bonds. One aspect of this offering is highly unusual for international sovereign debt: the bonds are not listed on any of the major global stock exchanges.
Such offerings are almost always listed, and usually on the Luxembourg Stock Exchange. Why did Santa Fe decide to stray from the herd? Perhaps it realized that there was little value to be gained from listing on an exchange.
Most of the lawsuits against Argentina in the New York courts ended in the Spring of 2016 through cash settlements with the major litigants. The market is still digesting the lessons from this 15 years of bitter litigation. That assessment may eventually conclude that
- playing the part of a death-grip holdout in a sovereign debt restructuring will probably pay off handsomely,
- obtaining a court injunction (a so-called pari passu injunction) preventing the sovereign borrower from paying its other external debt without making a “ratable” payment to holdouts is an essential element to a winning holdout strategy, and
- creditors prepared