Use of the Local Law Advantage in the Restructuring of European Sovereign Bonds

University of Bologna Law Review, Forthcoming

7 Pages Posted: 27 Apr 2018 Last revised: 29 Aug 2018

See all articles by Lee C. Buchheit

Lee C. Buchheit

Center for Contract and Economic Organization; Cleary Gottlieb Steen & Hamilton LLP - New York Office

G. Mitu Gulati

Duke University School of Law

Date Written: April 17, 2018

Abstract

Emerging market sovereigns issue bonds in the international capital markets governed by a foreign legal regime such as the law of England or New York State. European sovereigns, however, have been able to issue bonds governed by the issuer's own law. In the event of a future financial crisis, this gives European sovereign issuers the ability to pass local legislation that will facilitate an eventual restructuring of their bonds -- the "local law advantage." Greece did this in 2012 as part of a restructuring of €206 billion of Greek Government bonds.

The validity of the revisions to Greek law enacted in 2012 by the Greek Parliament has been upheld in multiple judicial challenges (in Greece, Germany, Austria and before the European Court of Human Rights), as well in a major ICSID arbitration. This raises the question of whether other European sovereigns enjoying the local law advantage over their bonds can, in an emergency, rely on the power of their own legislatures to amend local law in order to facilitate a future restructuring of those instruments.

Keywords: sovereign debt, eurozone, restructuring, CAC, local law advantage

JEL Classification: H63, H74, H87, K12, K22

Suggested Citation

Buchheit, Lee C. and Gulati, Gaurang Mitu, Use of the Local Law Advantage in the Restructuring of European Sovereign Bonds (April 17, 2018). University of Bologna Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3159665 or http://dx.doi.org/10.2139/ssrn.3159665

Lee C. Buchheit (Contact Author)

Center for Contract and Economic Organization ( email )

New York, NY

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

One Liberty Plaza
New York, NY 10006-1470
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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