Innovation after the Revolution: Foreign Sovereign Bond Contracts Since 2003

27 Pages Posted: 23 Sep 2008 Last revised: 2 Jun 2009

Anna Gelpern

Georgetown University Law Center

G. Mitu Gulati

Duke University School of Law

Date Written: September 23, 2008

Abstract

For over a decade, contracts literature has focused on standardization. Scholars asked how terms become standard, and why they change so rarely. This line of inquiry painted a world where a standard term persists until it is dislodged by another standard term, perhaps after a brief window of ferment before the second term takes hold. It also overshadowed the early insights of boilerplate theories, which described contracts as a mix of standard and customized terms, and asked why the mix might be suboptimal. This article brings the focus back to the mix. It examines the development of selected provisions in sovereign bond contracts after a widely publicized boilerplate shift in 2003. The adoption of collective action clauses in sovereign bonds five years ago moved the documentation standard in New York closer to the prevailing practice in London. However, contrary to expectations, the shift away from old boilerplate did not lead to convergence around new boilerplate. Issuers in London and, to a lesser extent, in New York, have been experimenting with diverse formulations and institutional arrangements, including trustees and creditor committees. The contracts we study, as well as our interviews with practitioners and officials, suggest that standardization may be a matter of degree, that the degree of standardization may vary across different markets, and that a shock of the sort that led the 2003 shift may dislodge a previously standard term without replacing it with a new standard - erstwhile boilerplate becomes a platform for customization.

Keywords: Sovereign debt, collective action clause, sovereign bankruptcy, IMF, innovation, standardization, boilerplate

JEL Classification: F34, F36, K22, K33, O16

Suggested Citation

Gelpern, Anna and Gulati, G. Mitu, Innovation after the Revolution: Foreign Sovereign Bond Contracts Since 2003 (September 23, 2008). Capital Markets Law Journal, Vol. 4, 2009; Rutgers School of Law-Newark Research Papers No. 024; Duke Law School Public Law & Legal Theory Paper No. 252. Available at SSRN: https://ssrn.com/abstract=1272464

Anna Gelpern (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

Gaurang Mitu Gulati

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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