Towards a More Robust Sovereign Debt Restructuring Architecture: Innovations from Ecuador and Argentina

Forthcoming, Capital Markets Law Journal (Oxford University Press)

11 Pages Posted:

Date Written: September 27, 2020

Abstract

The Collective Action Clauses published by the International Capital Markets Association in 2014/2015 aim to facilitate orderly and consensual sovereign debt restructurings. The clauses were designed to give sovereigns flexibility in structuring and consummating a transaction that would be capable of attracting broad creditor support, while safeguarding the integrity of the process and the rights of creditor minorities. The recent restructurings of Argentina and Ecuador presented the first opportunities for the ICMA CACs to be tested in practice, but the “re-designation” and “PAC-man” strategies first seen in the Argentine restructuring revealed shortcomings in the ICMA contractual architecture.

Argentina’s and Ecuador’s creditors responded by negotiating tailored refinements to the standard CACs that would mitigate the risk that a sovereign could compel a restructuring that is not supported by the requisite creditor supermajorities. The qualified restrictions on “re-designation” and “PAC-man” adopted by Ecuador and Argentina enhance the ICMA architecture and provide strong incentives for a sovereign to engage constructively with its private creditors in a consensus-building process that results in a restructuring proposal capable of achieving supermajority support.

Keywords: sovereign debt restructuring, Argentina, Ecuador, collective action clauses, re-designation, pac-man

Suggested Citation

Clark, Ian and Lyratzakis, Dimitrios, Towards a More Robust Sovereign Debt Restructuring Architecture: Innovations from Ecuador and Argentina (September 27, 2020). Forthcoming, Capital Markets Law Journal (Oxford University Press), Available at SSRN: https://ssrn.com/abstract=

Ian Clark

White & Case LLP ( email )

United States

Dimitrios Lyratzakis (Contact Author)

White & Case LLP ( email )

United States

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