lla tlegal aspects of sovereign debt restructuring · sovereign debt restructuring lla tlegal...

12
SOVEREIGN DEBT RESTRUCTURING L lA t Legal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February 2012 1

Upload: lyminh

Post on 15-May-2018

219 views

Category:

Documents


1 download

TRANSCRIPT

Page 1: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

L l A tLegal Aspects of

Sovereign Debt Restructuring

Dr Rodrigo Olivares-Caminal

London,

February 2012

1

Page 2: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

C di

UNDERSTANDING THE DYNAMICS OF SOVEREIGN DEBT RESTRUCTURING

IFI

Creditors

- The relationship O pbetween each type of creditor and the debtor is governed

LOA

FICI

Sovereign(Debtor)

Bilateralby a different set of rules

U tFINANCING

N IAL

( )- Upon an event of default, the interest of each type of creditor is

BPR

Private Investorstype of creditor is different (inverse to the pre-Brady era)

OND

IVAT

2

era)TE

Page 3: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

Borrowers Perspective

MultilateralLendingLending

PrivateBilateralLendingLending

Lenders Perspective

Ex-ante Ex-post

Page 4: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

One picture is worth a

thousand words (thiswords ... (this one, probably

more!)more!)

4

Page 5: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

R t R t t i E iRecent Restructuring Experiences

Relevant Aspects Ukraine Ecuador Pakistan Uruguay Argentina Belize

Amounts Amounts Restructured

(in USD)

2.6 bn 6.5 bn USD 0.6 bn USD 5.3 bn USD 87bn USD 0.4 bn

No of Bonds to be 5 6 3 62 152 7No. of Bonds to be restructured

5 6 3 62 152 7

New Bonds Issued2 2 1 34 4 1

Cash Payment/Incentive

No Yes No Yes Yes + CLNs Yes

Exchange Offer Acceptance

95% 97% 99% 93%93%

(76 + 17)97%

3 2 1 6 8 2Applicable Laws

3 2 1 6 8 2

Duration of the Default (months)

3 11 2 0 38 6

5

Default (months)

Face Value Reduction

0% 40% 0% 0% 75% 0%

Page 6: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

There is an informal legal framework built on previous restructuring experiences and mainly NY case law. No formal regime.

Sovereign Debt Restructuring

NY Law UK Law

NY Approach London ApproachNY Approach London Approach

Court Supervised Contractual Terms

SDRMClass Action Exchange Offer

CACs

6

ExitConsent

Page 7: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

UNDERSTANDING THE DYNAMICS: RESTRUCTURING AIMS

Obtain debt sustainability by reducing debt burden in an orderly manner.debt burden in an orderly manner.

Protect the value of the assets and the rights of the creditors to minimise litigationrights of the creditors to minimise litigation.

Achieve a restructuring over a short period of time to reduce disruptions and re-gain access to the capital markets.

All parties involved should share part of the effort (exceptions).

7Chicago Mercantile Exchange

Page 8: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

EFSM€60bn

Available to all 27 EU member states

EFSF€440bn

states

€440bnFor EAMS

EAMSEAMS

8

€250bnUp to half the amount drawn

from EFSF and EFSM

Page 9: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

EFSM€60bn

Available to all 27 EU member states

EFSF€440bn

states

ESM€700bn€440bn

For EAMS

€700bnfor EAMS

EAMSEAMS

9

€250bnUp to half the amount drawn

from EFSF and EFSM

Page 10: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

BUSTING SOME MYTHS ... Countries can be insolvent.

A t t i i li d f ltA restructuring implies a default.

A restructuring will trigger CDS.

After default a country cannot re-access the capital markets.

A EAMS can leave the euro.

Some of the debts of Greece Portugal and/orSome of the debts of Greece, Portugal and/or Ireland are odious debts.

l f d b d

10

Vulture funds are bad.

Due to the pari passu clause, when a paymentis made I will also receive a share.

EFSF debt has priority.

Page 11: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

Any Questions ?Any Questions ?

谢谢. Cam rá. Efharisto. Obrigado. Gracias. Grazie. Thank You.

Merci. Dankeshen. Etc.

olivares caminal@gmail [email protected]

11

Page 12: LlA tLegal Aspects of Sovereign Debt Restructuring · SOVEREIGN DEBT RESTRUCTURING LlA tLegal Aspects of Sovereign Debt Restructuring Dr Rodrigo Olivares-Caminal London, February

SOVEREIGN DEBT RESTRUCTURING

CACs are clauses whereby, if they are included in the prospectuses of the bonds, the

DEFINITIONS

y y p pinteraction of the bondholders is required. There are four different types of CACs. These are:(1) collective representation clauses; (2) majority action clauses; (3) sharing clauses; and (4)acceleration clauses. Within CACs, majority action clauses are the type of clauses that havebeen strongly pursued by the official sector and many academics and they were effectivelybeen strongly pursued by the official sector and many academics, and they were effectivelyincorporated in bond issuances. Majority action clauses enable the amendment of any of theterms and conditions of the bonds, including the payment terms, if the required majoritytherein established is obtained. So far, the required threshold to amend the terms of theqbonds containing majority action clauses has been 75% in aggregate principal amount of theoutstanding bonds (e.g. Egypt, Lebanon, Mexico, Qatar, Uruguay, etc). Brazil and Belize havebeen the only cases where 85% has been required.

Exit consent is the technique, by which holders of bonds in default, who decide to accept anexchange offer, at the moment of accepting the said offer, grant their consent to amendcertain terms of the bonds that are being exchanged. By using the exit consent technique, theexchange offer is conditioned to a minimum threshold of creditors’ acceptance and theamendments to the terms are performed once the required majority has been obtained. Bymeans of these amendments, the defaulted bonds subject to the exchange offer become lessattractive (in legal and financial terms) forcing a greater number of bondholders to accept the

12

attractive (in legal and financial terms), forcing a greater number of bondholders to accept theexchange offer. Otherwise, if holdout bondholders do not accept the exchange offer, they willbe holding an impaired bond not featuring some of the original contractual enhancements.