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The Pari Passu Fallacy -- Requiescat in Pace

4 Pages Posted: 1 Feb 2018  

Lee C. Buchheit

Cleary Gottlieb Steen & Hamilton LLP - New York Office

Date Written: January 24, 2018

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.

Keywords: sovereign debt, pari passu

JEL Classification: F34, H63

Suggested Citation

Buchheit, Lee C., The Pari Passu Fallacy -- Requiescat in Pace (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)

Cleary Gottlieb Steen & Hamilton LLP - New York Office ( email )

One Liberty Plaza
New York, NY 10006-1470
United States

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