Brussels, 01/09/2014 (Agence Europe) - At the end of August, ICMA, the international body representing market players (apart from speculative funds) adjusted the collective action clauses in its standard contracts on sovereign bonds.
One of the main changes makes it possible to bind a number of layers of bond to a single vote by a country's lenders.
Since 2013, eurozone countries have been issuing sovereign bonds that include collective action clauses (CACs) under the legal system applicable to each national bond market (see EUROPE 10589). If a public debt is written down, the CAC can force reluctant investors to participate as long as 75% of debt holders agree to take part in the write-down. The treaty establishing the European stability mechanism, the eurozone's permanent bailout fund, provides for the introduction of CAC.
Another change introduced by ICMA means that countries will no longer be forced to make a comparable payment to lenders which have agreed to a write-down of the country's debt and those that oppose it. Countries will not be required to reimburse both types of investor at the same time.
If Argentina had had these revised CACs for its sovereign debt transactions, it would have avoided the current problems it has been caused by a number of US speculative funds fighting back against the write-downs in Argentine debt in 2005 and 2010. (MB)