The Hidden Law Guiding the Sovereign’s Use of Exit Consents

23 Pages Posted: 27 Apr 2019 Last revised: 2 May 2019

See all articles by Isabelle Sawhney

Isabelle Sawhney

Duke University, School of Law, Students

Date Written: April 1, 2019


The sovereign’s use of exit consents is masked in legal uncertainty. There is only a handful of corporate exit consents cases, and those cases do not provide definitive answers as to the legal parameters of this strategy. Therefore, restructurers must look for answers in similar situations to ascertain which exit consent strategies could survive legal challenges.

As § 316(b) of the Trust Indenture Act contains similar prohibitions as the bonds that traditionally utilize exit consents, § 316(b) cases can be informative in this respect. In particular, the latest § 316(b) case, Marblegate Asset Management, LLC v. Education Management Finance Corp., provides some clarity with regards to which actions may be permissible in restructurings. However, Marblegate leaves important questions unanswered. If restructurers overlook these unresolved issues, their exit consent strategies––and consequently, their entire restructuring schemes––are at significant risk of invalidation.

Accordingly, this paper lays out the current legal framework for the exit consent strategy in sovereign restructurings. Then it discusses the questions Marblegate leaves unresolved, and any potential affect Marblegate had on quasi-sovereigns’ bond terms. Finally, the paper ends with several guiding principles sovereign restructurers should consider when they formulate their exit consent strategies. This paper proposes two situations that may be the tipping point for permissible strategies: when bondholders are left with no practical ability to receive payment, and when core payment terms are amended.

Keywords: Sovereign Debt; Exit Consents; Marblegate; 316(b) of the Trust Indenture Act

Suggested Citation

Sawhney, Isabelle, The Hidden Law Guiding the Sovereign’s Use of Exit Consents (April 1, 2019). Available at SSRN: or

Isabelle Sawhney (Contact Author)

Duke University, School of Law, Students ( email )

Durham, NC
United States

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