The Pari Passu Fallacy -- Requiescat in Pace (La Falacia pari-passu -- Descanse en paz)

10 Pages Posted: 1 Feb 2018 Last revised: 9 May 2018

See all articles by Lee C. Buchheit

Lee C. Buchheit

Center for Contract and Economic Organization

Date Written: January 24, 2018

Abstract

English Abstract: 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.

Spanish Abstract: La falacia pari passu fue esgrimida por vez primera en el año 2000. Según esta falacia, cuando un deudor soberano promete mantener una deuda en igualdad de condiciones que sus otras deudas preferentes, implícitamente promete que pagará todas sus deudas de forma prorrateada. Durante su larga vigencia de 18 años, esta falacia ha causado problemas considerables en los mercados de deuda soberana. Sin embargo, decisiones recientes de los tribunales federales norteamericanos con jurisdicción en Nueva York han aclarado las circunstancias según las cuales se considerará que un deudor soberano ha incumplido e, igualmente importante, cuándo se considera que no ha incumplido la obligación contractual pari passu.

Note: Downloadable document is in English and Spanish.

Keywords: sovereign debt, pari passu

JEL Classification: F34, H63

Suggested Citation

Buchheit, Lee C., The Pari Passu Fallacy -- Requiescat in Pace (La Falacia pari-passu -- Descanse en paz) (January 24, 2018). Available at SSRN: https://ssrn.com/abstract=3108862 or http://dx.doi.org/10.2139/ssrn.3108862

Lee C. Buchheit (Contact Author)

Center for Contract and Economic Organization ( email )

New York, NY

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