State Guarantees That Bite One in the Backside

Our guest is legendary financial reporter, Joseph Cotterill, who famously chronicled the Pari Passu Saga for FT Alphaville in a previous incarnation. Joseph is now the Africa correspondent for the FT and we ask him about the corruption infused Tuna Bonds of Mozambique and South Africa’s tottering utility giant Eskom. In both situations, the largely unexamined problem of off balance sheet state borrowing via guarantees seems to have played a key role in the creation of the debt problems these countries face.

Producer: Leanna Doty

Contracting for Disaster(s)

Borrowers must pay. Period. Even a natural disaster probably won't excuse non-payment. And while loan contracts can provide a wider range of excuses, they almost never do. Contract innovation is rare in sovereign debt markets. Except, sometimes, it happens. Jim Ho is part of the team that designed the Natural Disaster Clause for Barbados. We talk with Jim about this innovation, its origins in Grenada's hurricane clause, and about whether the clause could be expanded to cover pandemics and other disasters.

Producer: Leanna Doty

The Sovereign Debt Seating Chart Needs Bigger Chairs

Big investors have been the dominant force on the investor side in recent restructurings. Rather than litigious hedge funds, big “real money” investors seem to be in charge. Has there been a fundamental shift in restructuring dynamics in sovereign debt cases? We talk with Anna Szymanski (Reuters Breakingviews) about this shift and what it might portend for the next wave of sovereign restructurings. Also: Is there any hope for Lebanon? We tap into Anna’s deep expertise about the serious crisis in that country.

Producer: Leanna Doty

Would you rather date Ecuador or Argentina?

Neither can pay their debts. But one brings your parents flowers while the other gets drunk at your Mom’s party and rides a Harley. That’s our understanding, anyway, of why investors are so sweet on Ecuador and so mad at Argentina after both countries conducted similar debt restructurings. We talk with Colby Smith, the extraordinary financial markets reporter at the Financial Times, about whether we might be missing some important aspects of this story.

Producer: Leanna Doty

How Did We Get the Crappy CAC?

Argentina made a lot of investors mad by proposing (threatening?) to pursue a divide-and-conquer strategy in its ongoing debt restructuring. The proposal added new jargon to the already-bewildering sovereign debt lexicon. Redesignation! Pac-Man! But what did Argentina really do? It all comes down to the collective action clause, or CAC. We talk with the brilliant Anna Gelpern about these clauses, about whether Argentina or its creditors were being ill-behaved, and about how Argentina could have avoided all this drama if it had just used a slightly different CAC, one that is already in widespread use. Basically, Argentina got the crappy CAC.

Producer: Leanna Doty

Why all the Sturm and Drang Over Force Majuere?

Recently, thanks to COVID-19, there has been much talk about the otherwise generally obscure civil law concept of force majeure. Our dear friend, the incomparable Eric Posner, tells us how this concept tends to play out in the US context and why every major law firm in the country seems to be writing client memos on it. Of greatest interest to us is the question of whether sovereign debtors can invoke the international law version (at least a close cousin) of it – the doctrine of economic necessity – to obtain temporary relief from their debt obligations today so as to divert resources to fight the pandemic. Eric kindly engages in a discussion of the complexities that would be involved.

Producer: Leanna Doty

Where Did All the Secured Loans Go?

Once upon a time, many governments could borrow in foreign markets only if they pledged assets to back the loan. Today, sovereigns almost never do this, although it happens in other debt markets. In Episode Four, we talk with Noel Maurer (George Washington University) about property rights and revenue pledges. Sovereigns used to promise creditors priority to customs duties, specific taxes, etc. Creditors (or their home governments) even appointed agents to manage the borrower’s revenue institutions. For the most part, these pledges have disappeared from modern sovereign lending—a transition documented in Noel’s terrific book, The Empire Trap. We talk with Noel about why this might be. Also, Donald Trump’s willingness to buy and sell sovereign territory. (Remember the Greenland drama?) We ask whether Donald Trump would pledge parts of the U.S. if he thought it would lower borrowing costs.

Producer: Leanna Doty

Gold Clause Mumbo Jumbo

We love to talk about the Gold Clause Cases from the 1930s and wonder why our colleagues are less enthusiastic. In this episode, we talk with constitutional law expert Gerard Magliocca (Indiana) about the cases, which are the subject of Gerard’s wonderful article, The Gold Clause Cases and Constitutional Necessity. The basic plot is that, in the 1930s, the U.S. needed to devalue the currency but feared that this would bankrupt private borrowers and magnify the government’s own debt burden. The reason? Loan contracts called for repayment in gold dollars indexed to their pre-devaluation value. So the government abrogated these clauses, and the Supreme Court looked the other way. We talk with Gerard about the Court’s motivations, how it dodged a constitutional crisis, the baffling (to us, anyway) reasoning underlying the Perry decision, and the potential relevance of the case to today’s covid-19 crisis.

Producer: Leanna Doty

Imperial Chinese Bonds: Are They Coming Back to Life in 2020?

Bloomberg’s Tracy Alloway, financial reporter extraordinaire, and sovereign debt guru Lee Buchheit join us for a discussion of zombie sovereign bonds. Over the last year, there have been stories in Bloomberg, the Financial Times and on NPR on the possible resuscitation of claims against China for non-payment of bonds that were issued over a century ago by the Imperial Government. The driving force for these stories has been the efforts of a group of supporters of President Trump who apparently hold a big bunch of these antique bonds and want President Trump to negotiate a settlement for them as part of his trade talks with China.

Producer: Leanna Doty

Venezuela’s Oil Company is Up For Grabs – and the Absence of Ten Words in its Governing Law Clause May Decide Who Gets it

The governing law clause is perhaps the most basic provision in every contract. Yet, it is so routine that few pay attention to it. Failure to pay attention to its precise wording though can bite one in the backside as the ongoing litigation between investors in Venezuelan bonds and the government-in-exile of that country demonstrates. Mark and Mitu discuss the Venezuelan governing law clause drama, as well as a number of other similar situations that have cropped up in recent years, including with Ukraine, Puerto Rico, and Mozambique.

Producer: Leanna Doty