The Pari Passu Fallacy -- Requiescat in Pace
4 Pages Posted: 1 Feb 2018
Date Written: January 24, 2018
The pari passu fallacy, first uncloaked in 2000, holds that when a sovereign borrower promises to maintain the equal ranking of a debt with the borrower's other senior indebtedness, it thereby implicitly promises to pay all of those debts on a ratable basis. In its 18-year life span, the fallacy caused considerable mischief in the sovereign debt market. Recent decisions of the US federal courts in New York have clarified the circumstances in which a sovereign borrower will be held to breach, and just as importantly when it will be held not to breach, a contractual pari passu undertaking.
Keywords: sovereign debt, pari passu
JEL Classification: F34, H63
Suggested Citation: Suggested Citation