Sovereign bond clauses grow in popularity

Author: Zoe Thomas | Published: 21 Jan 2015

A new breed of sovereign bonds to combat the perceived rise in power of holdouts in sovereign restructurings is growing in popularity. Following on from the collective action clauses (CAC) drafted by International Capital Markets Association (ICMA) last year, more expansive clauses providing sovereigns more leeway for restructuring are being taken up.

Argentina’s hostile battle to restructure its sovereign bonds has caused a growing number of countries looking to pre-empt problems with holdout creditors.

The new breed of bonds include CACs that allow all classes of bonds to be restructured pending a vote by the aggregate note holders. In November Mexico, extended the restructuring power of sovereign issuers by including a clause to repay all restructured notes the same, regardless of their maturity.

"This new provision that Mexico introduced...